DIGEST 

OF  THE 

STATEMENTS 


MADE  ON 


I ISCLE  SHOALS  PROPOSITIONS 


AT  THE 


HEARINGS  BEFORE  THE 
COMMITTEE  ON  MILITARY  AFFAIRS 


-v-v-  OF  THE 

HOUSE  OF  REPRESENTATIVES     ' 


FEBRUARY   8,  1922 
TO  MARCH  13,  1922 


WASHINGTON 
GOVERNMENT  PRINTING  OFFICE 

1922 


COMMITTEE  ON  MILITARY  AFFAIRS. 
HOUSE  OF  REPRESENTATIVES. 

* 

SIXTY-SEVENTH   CONGRESS. 

JULIUS  KAHN,  California,  Chairman. 

JOHN  C.  McKENZIE,  Illinois.  WILLIAM  J.  FIELDS,  Kentucky. 

FRANK  L.  GREENE,  Vermont.  PERCY  E.  QUIN,  Mississippi. 

JOHN  M.  MORIN,  Pennsylvania.  HUBERT  F.  FISHER,  Tennessee. 

HARRY  E.  HULL,  Iowa.  WILLIAM  C.  WRIGHT,  Georgia. 

W.  FRANK  JAMES,  Michigan.  PHILIP  H.  STOLL,  South  Carolina. 

CHARLES  C.  KEARNS,  Ohio.  DANIEL  E.  GARRETT,  Texas. 

JOHN  F.  MILLER,  Washington. 
RICHARD  WAYNE  PARKER,  New  Jersey. 
FRANK  CROWTHER,  New  York. 
HARRY  C.  RANSLEY,  Pennsylvania. 
JOHN  PHILIP  HILL,  Maryland. 
HARRY  M.  WURZBACH,  Texas. 
LOUIS  A.  FROTHINGHAM,  Massachusetts. 
THOMAS  S.  CRAGO,  Pennsylvania. 

HOWARD  F.  SEUGWICK.  Cler*. 
II 


CONTENTS. 


Page* 

Almon.  Hon.  Edward  B..  Representative  in  Congress  from  Alabama 28 

Bankhead.  Hon.  William  B..  Representative  in  Congress  from  Alabama 40 

Beach.  Maj.  Gen.  Lansing  H.,  Chief  of  Engineers 7 

Boot  on.  Maj.  John  G.,  in  charge  of  contract  section,  Ordnance  Department 32 

Bower.  R.  F.,  assistant  in  Washington  office  of  American  Farm  Bureau  Federa- 
tion  '. 19 

Burns.  Maj .  J .  H . .  Ordnance  Department 9 

Butler.  Hon.  Marion,  attorney  for  Mr.  Engstrum 34 

Byrns.  Hon.  Joseph  W..  Representative  in  Congress  from  Tennessee 46 

Cooper.  Hugh  L. .  consulting  engineer 15 

Dent.  Hon.  S.  Hubert,  jr.,  attorney  for  Alabama  Power  Co 19 

Engstrum.  Frederick  E.,  president  of  the  Newport  Shipbuilding  Corporation. .  33 

Frothii)gham,  Francis  E.,  of  Coffin  &  Burr .' 38 

HammitT,  J.  O.,  vice  president  Air  Nitrates  Corporation 16 

Hull.  Col.  John  A..  Acting  Judge  Advocate  General 

Joyes.  Col.  J.  W. ,  Ordnance  Department 40 

Levering,  J.  H..  civil  engineer 37 

MacDowell.  Charles  H..  president  National  Fertilizer  Association 18 

McDuffie.  Hon.  John,  Representative  in  Congress  from  Alabama 40 

Mahoney.  F.  D.,  commercial  manager  Alabama  Power  Co 28 

Martin.  "Thomas  W.,  president  Alabama  Power  Co 23 

Mayo.  William  B.,  chief  engineer  of  the  Ford  Motor  Co 10 

Oliver.  Hon.  William  B.,  Representative  in  Congress  from  Alabama 30 

Parsons.  Dr.  Charles  L.,  consulting  chemist 43 

Silver,  Gray,  Washington  representative  of  American  Farm  Bureau  Federation.  18 

Swann,  Theodore,  president  Federal  Phosphorus  Co 15 

Taylor.  Hon.  A.  A.,  Governor  of  the  State  of  Tennessee 13 

Tolman.  Dr.  Richard  C.,  director  Fixed  Nitrogen  Research  Laboratory,  De- 
partment of  Agriculture 12 

Weeks.  Hon.  John  W. ,  Secretary  of  War 1 

Whitney.  Dr.  Milton,  chief,  Bureau  of  Soils,  Department  of  Agriculture ]3 

Williams.  Maj.  Gen.  C.  C..  Chief  of  Ordnance 5 

Worthington.  J.  W.,  chairman  of  the  executive  committee  of  the  Tennessee 

River   Improvement   Association 14 

ra   * 


736978 


DIGEST  OF  THE  STATEMENTS  MADE  (L\  MUSCLE  SHOALS 

PROPOSITIONS. 


DIGEST  OF  REPORT  AND  STATEMENT  OF  HON.  JOHN  W.  WEEK-    SECR-EIA^I'.  uf  WAS 

(pp.  3-66). 

The  report  includes  the  following  exhibits: 

Proposal  of  Henry  Ford,  dated  July  8,  1921;  letter  from  Henry  Ford,  dated  January 
11,  1922,  modifying  the  proposal  of  July  8,  1921;  proposal  of  Henry  Ford,  dated  Jan- 
uary 25.  1922:  memorandum  from  the'  Chief  of  Ordnance;  memorandum  from  the 
Chief  of  Engineers;  cost  statement  of  nitrate  plants  No.  1  and  Xo.  2  and  Warrior- 
Sheffield  power  station  and  transmission  line;  and  memorandum  from  Maj.  John  A. 
Smith,  Judge  Advocate  General's  Office. 

(Unless  otherwise  noted,  the  paging  given  refers  to  the  report  or  testimony  of 
Mr.  Weeks.) 

Alabama  Power  Co. 

Alabama  Power  Co.  donated  dam  site  for  Dam  No.  2  and  other  lands,  represent- 
ing an  investment  of  approximately  $476,000.     (Letter  from  company,  pp. 
38-39.) 
Costs. 

Dam  Xo.  2.  total  expenditures,  $16,251,038.14  (p.  4). 

Dam  Xo.  2,  allotments,  $17,159,610.42  (p.  4). 

Gorgas- Warrior  steam  plant.  (See  Warrior-Sheffield  power  station  and  trans- 
mission line.) 

Xitrate  plant  Xo.  1,  $12,887,941.31.     (Chief  of  Ordnance,  p.  21.) 

Xitrate  plant  Xo.  2,  $67,555,355.09,  including  Waco  quarrv.  (Chief  of  Ordnance, 
p.  22.) 

Xitrate  plant  Xo.  2,  $69,674,000,  approximately.  (Chief  of  Ordnance,  p.  18. 
Figure  includes  the  Muscle  Shoals  substation.) 

Waco  quarry,  $1,179,000,  approximately.     (Chief  of  Ordnance,  p.  18.) 

Waco  quarry,  $1,179,076.80.  included,  however,  as  an  element  of  the  total  cost 
of  nitrate  plant  No.  2.  (Report  of  Mr.  Weeks,  p.  5.) 

Waco  quarry.  $1,302.962.88.     (Chief  of  Ordnance,  p.  22.) 

Warrior-Sheffield  power  station  and  transmission  line,  $4.676.000,  approximately . 
(Chief  of  Ordnance,  p.  18.) 

Warrior-Sheffield  power  station  and  transmission  line.  $4,979,782.33.  (Chief  of 
Ordnance,  p.  22.) 

Total  amount  of  money  the  Government  has  already  expended  in  the  entire 
project  at  Muscle  Shoals  is  $106,203,016.07.     This*  includes  maintenance  to 
July  1.  1921  (p.  36). 
Costs  of  .maintenance. 

Cost  of  maintenance  of  nitrate  plant  Xo.  2  for  the  fiscal  year  1921,  including 
Waco  quarry,  was  $201,674.63  (p.  5). 

The  Government  is  getting  more  out  of  payments  for  leases  on  power  plants  than 

it  is  spending  there  now  (p.  59). 
Dams. 

Dam  Xo.  2.  approximately  30  per  cent  completed  (p.  4).  "I  do  not  know  about 
the  30  per  cent.  I  am  not  very  clear  in  my  own  mind  about  that"  (p.  30). 

Under  the  Ford  proposal,  Mr.  Ford's  company  is  to  do  the  construction  work  pf 
Dams  Xos.  2  and  3  in  accordance  with  plans  and  specifications  prepared  or 
approved  by  the  Chief  of  Engineers  (p.  8). 
Disposition  of  Muscle  Shoals  proposition. 

If  Mr.  Ford's  proposal  be  not  accepted,  it  is  opinion  of  Mr.  Weeks  that  Dam  Xo.  2 
should  be  completed  by  the  Government.  If  this  were  done  the  Government 
may  itself  undertake  to  sell  the  product  to  the  best  advantage.  In  such  case 
the  amount  of  the  Government's  present  proposed  investment  would  be  very 
materially  reduced,  because  Dam  Xo.  3,  costing  from  $18,000.000  to  $25,000,000, 
would  not  be  built.  At  Dam  Xo.  2  it  would  not  be  necessarv  to  make  the  full 


2  DIGEST  OF  STATEMENTS  ON   MUSCLE  SHOALS. 

Disposition  of  Muscle  Shoals  proposition — Continued. 

installation  of  power  plant  until  the  market  should  require  such  installation. 
This  partial  installation  would  effect  a  saving  of  present  investment  in  at  least 
the  sum  of  $3,000,000,  leaving  not  to  exceed "$22, 000. 000  to  be  invested  by  the 
Government  at  this  time  instead  of  $40,000,000  to  $50,000,000  (p.  9). 
The  acceptance  of  the  Ford  proposal  would  mean  the  following  indirect  benefits 
to  the  United  States: 

(a)  The  maintenance  of  a  nitrate  plant  in  readiness  for  a  war  emergency. 
(&')  The  production,  in  the  interest  of  the  public  welfare,  of  large  amounts 
of  fertilizer  at  a  cost  not  exceeding  the  reasonable  cost  of  production, 
providing  that  the  production  of  nitrates  adapted  to  fertilizing  pur- 
poses is  found  to  be  practicable. 

(c)  The  elimination  of  the  cost  of  maintaining  and  operating  the  present 
imperfect  facilities  for  navigation  at.  Muscle  Shoals,  amounting  to 
from  $35,000  to  $85,000  per  annum. 

(d}  The  advantage  to  interstate  commerce  and  navigation  of  far  superior 
facilities  to  navigation.  (Memorandum  of  Chief  of  Engineers,  pp. 
2(^21.) 

Mr.  Weeks  is  opposed  to  the  Government  engaging  in  the  manufacture  of  fer- 
tilizer (p.  33). 

Mr.  Weeks  would  not  recommend  scrapping  of  nitrate  plant  No.  2  (pp.  35,  36). 
From  the  standpoint  of  national  defense  the  War  Department  would  recom- 
mend that  it  maintain  nitrate  plant  No.  2,  if  Mr.  Ford's  offer  is  not  accepted. 
The  United  States  might  conclude  to  complete  Dam  No.  2  to  obtain  power 
cheaply,  and  to  sell  the  power.    Mr.  Weeks  thinks  that  it  could  sell  the  bal- 
ance of  the  property  at  more  than  the  estimated  scrap  value  (pp.  49-50). 
Estimates. 

Dam  No.  2,  $23,230,000  (Mr.  Ford's  engineers).     (Memorandum  of    Chief  of 

Engineers,  p.  20.) 

Dam  No.  2,  $25,000,000.     (Chief  of  Engineers,  p.  20.) 
Dam  No.  3,  $19,000,000  (Mr.   Ford's  engineers).     (Memorandum  of   Chief  of 

Engineers,  p.  20.) 

Dam  No.  3,  $25,000,000.     (Chief  of  Engineers,  p.  20.) 
Flowage  rights ,  $1 , 500 , 000 .     ( Mr .  Weeks ,  p .  43 . ) 
Flowage  rights,  $2.331,000.     (Chief  of  Engineers,  p.  20.) 

If  Mr.  Ford's  proposal  is  accepted  the  Government  must  make  new  appropriation, 
amounting  to  $40,000,000  to  $50,000,000,  of  which  Mr.  Ford's  company  will  have 
the  benefit  for  approximately  100  years  at  4  per  cent  (p.  8). 

Carrying  charges  on  construction  of  dams  will  lie  $13,320,000.  Such  carrying 
charges  are  not  customarily  considered  in  Government  work,  but  are  here  in- 
cluded in  order  that  the  analysis  may  be  complete.  The  cost  of  the  flowage 
rights  for  Dam  No.  3  is  estimated  af  $2,331,000,  giving  a  total  of  $15,051,000 
(p.  20).  The  funds  that  have  been  expended  on  Dam  No.  2  have  not  been 
included  in  the  analysis,  for  the  reason  that  neither  the  acceptance  nor  the 
rejection  of  Mr.  Ford's  offer  would  restore  any  substantial  portion  of  them  to 
the  Public  Treasury.  (Memorandum  of  Chief  of  Engineers,  p.  21.) 
Cost  of  acquiring  land  on  which  transmission  line  has  been  built,  in  order  to  clear 

title,  would  amount  to  a  substantial  sum  (p.  40). 
Fertilizer. 

Mr.  Ford  said  he  would  not  continue  to  manufacture  fertilizer  if  he  finds  that  he 
can  not  manufacture  it  profitably  (p.  29).  His  modified  offer  does  modify  that 
statement  (p.  37). 

Total  production  of  fertilizer  in  the  United  States  during  1920  amounted  to 
7,700,000  tons.  Total  nitrogen  content  of  this  fertilizer  probably  amounted  to 
160,000  tons.  About  one-half  of  this,  or  80,000  tons,  was  inorganic  nitrogen. 
The  No.  2  nitrate  plant  can  produce  some  200,000  tons  of  sulphate  of  ammonia 
per  year,  which  contains  some  40,000  tons  of  nitrogen.  Or,  in  other  words,  this 
plant  can  produce  about  one-fourth  of  all  the  nitrogen  used  in  fertilizer,  or  about 
one-half  of  the  inorganic  nitrogen  used  in  fertilizer  (p.  45). 

If  Mr.  Weeks  could  be  convinced  that  there  would  be  a  large  amount  of  fertilizer 

produced,  he  would  feel  much  more  enthusiastic  about  Mr.  Ford's  offer  than 

he  does  now.     Has  not  had  sufficient  evidence  that  that  can  be  done,  and  does 

not  believe  that  Mr.  Ford  or  his  engineers  know  whether  it  can  be  dome  (p.  62). 

Financing  by  the  Government. 

The  major  item  of  the  consideration  for  the  lease  is  the  payment,  after  specified 
periods,  of  4  per  cen,t  on  the  net  capital  expenditures  to  be  made  by  the  Govern- 
ment. Considering  that  the  Government  is  now  paying  somewhat  less  than  5 


DIGEST  OF  STATEMENTS  OX   MUSCLE   SHOALS.  3 

Financing  by  the  Government — Continued. 

per  cent  on  short-term  loans,  it  is  believed  reasonable  to  assume  that  when 
the  specified  full  rental  begins  to  run,  some  10  years  hence,  the  interest  rates 
paid  by  the  United  States  will  not  substantially  exceed  4  per  cent  and  may  be 
less.  (Memorandum  of  Chief  of  Engineers,  p.  *19.) 

Believes  that  the  Government  could  complete  Dam  No.  2  without  taking  a  dollar 
from  the  Treasury,  issuing  bonds  that  could  be  sold,  based  on  the  dam  and  the 
sale  of  the  water  power  that  could  be  contracted  for  (p.  33). 
The  Government,  for  the  first  six  years,  does  not  receive  any  substantial  interest 

on  the  investment  (p.  49). 
Flo  wage  rights. 

Cost  of  acquiring  the  lands  and  flowage  rights  necessary  for  Dam  Xo.  3  should  be 
included  in  the  sum  upon  which  Mr.  Ford  is  to  pay  4  per  cent  interest  as  rent. 
The  omission  of  the  cost  of  these  lands  from  this  computation  is  more  serious 
than  would  be  the  omission  of  the  provision  for  a  sinking  fund,  for  the  annual 
interest  of  4  per  cent  on  the  cost  of  such  lands  and  rights,  if  used  for  that  purpose, 
would  umortize  a  sum  much  larger  than  that  provided  for  in.  paragraph  10  of 
Mr.  Ford's  proposal  (p.  9). 
Cost  of  flowage  rights  for  Dam  Xo.  3  estimated  at  $2,331,000.  (Chief  of  Engineers, 

p.  20.) 
Cost  of  flowage  rights  for  Dam  Xo.   >  estimated  to  cost  about  $1,500,000.     (Mr. 

Weeks,  p.  43.  i 
Mr.  Ford  stated  that  he  does  not  intend  to  and  would  not-  agree  to  "pay  i.ho  cost 

ol  acquiring  the  land  and  flowage  rights  *p.  57*. 
Gorgos-Warrior  steam  plant. 

During  the  calendar  year  11)21   netted  the  Government  approximately  -¥75,000 

<p.  o:. 
Xow  leased  to  the  Alabama  Power  Co.  for  ?75,000  a  year,  which  is  between  V.  and 

J  i  per  cent  on  the  cost  of  the  plant  i  pp.  40-U  ». 
Leases,  length  of. 

nelieves  it  would  be  better  policy  to  limit  the  contract  to  a  term  of  50  years 

fp.  9>. 
Legal  questions  involved. 

Construction  of  nitrate  plant  Xo.  1  started  from  an  appropriation  contained  in 

the  national  defense  act  of  June  3,  191  ("5,  &nd  completed  from  appropriations 

made  for  the  national  security  and  defense,    arman.ent  of  fortifications,  and 

ordnance  sen  ice  (p.  •">  . 

Nitrate  plant  Xo.  2  paid  for  from  the  appropriations  for  armament  of  fortifications 

and  ordnance  service  (p.  5>. 
Gorgas- Warrior  steam  plant  paid  tor  from  the  appropriations  for  armament    of 

fortifications    i-.  '   . 

Understood  by  otfce  of  Judge  Advocate  General  that  nitrate  plant  No.  1  and 
Dam  No.  2  were  paid  for  in  part  from  the  $20,000,000  appropriated  by  the 
national  defense  act.  Understood  that  the  land  for  nitrate  plant  No.  1  was 
paid  for  from  that  appropriation,  but  the  construction,  of  plant  No.  1  and  all 
expenses  in  connection  with  nitrate  plant  No.  2  were  paid  for  fiom  war  appro- 
priations for  the  Ordnance  Department.  (Memorandum  from  ofl.cc  of  Judge 
Ac!  \ocate  General,  p.  23.  i 

Air  Nitrates  Corporation  has  sent  written  notification  that  it  claims  the  right  to 
exercise  the  option,  which  it  claims  ro  have,  to  purchase  nitrate  plant  No.  2 
(p.  fi). 

Acting  Judge  Advocate  General  advised  that  on  date  contract  with  the  Air  Nitrates 
Corporation  was  executed  there  was  no  authority  under  existing  law  for  the  sale 
of  the  property  covered  in  the  contract,  and  that  the  provision  in  the  contract 
relating  to  the  option  of  the  company  is  nugatory  and  void  and  is  not  binding 
upon  the  United  States,  i  Memorandum  from  office  of  Judge  Advocate  General, 
p.  24.) 

The  Ordnance  Department  now  has  a  contract  with  the  American  Cyanamid  Co. 
which  contains  a  clause  to  the  "sale  of  plants  "  to  the  company.  It  is  believed 
that  due  consideration  should  be  taken  of  this  right  of  the  American  Cyanamid 
Co.  (Memorandum  of  Chief  of  Ordnance,  p.  18. ) 

Before  the  United  States  can  turn  over  to  Mr.  Ford  all  of  the  properties  that  he 
desires  some  sort  of  an  arrangement  will  have  to  be  concluded  between  the 
United  States  and  the  American  Cyanamid  Co.  which  may  require  a  money 
consideration.  (Memorandum  of  Chief  of  Ordnance,  p.  19.  )* 
The  license  agreement  with  the  American  Cyanamid  Co.  involving  the  use  of 
patents  at  nitrate  plant  No.  2  provides  that  the  United  States  may  transfer  to 
the  purchaser  of  said  plant  the  right  to  avail  itself  of  the  license  agreement,  but 


i  DIGEST   OF   STATEMENTS  ON   MUSCLE   SHOALS. 

Legal  questions  involved — Continued. 

it  is  extremely  doubtful  that  the  term  "purchaser"  as  used  in  the  contract 
could  be  construed  to  include  a  "lessee"  of  said  plant.  (Memorandum  from 
office  of  Judge  Advocate  General,  p.  25.) 

The  Ordnance  Department  now  has  a  contract  with  the  Alabama  Power  Co. 
which  provides  definitely  for  the  sale  to  that  company  of  the  Gorgas  power  plant 
on  Warrior  River  and  transmission  line  from  Gorgas  plant  to  plant  2.  It  is  be- 
lieved that  our  contractual  obligations  require  us  to  meet  both  the  spirit  and 
letter  of  this  contract  unless  the  Alabama  Power  Co.  is  willing  to  surrender  or 
sell  its  rights.  (Memorandum  of  Chief  of  Ordnance,  p.  18.) 

Before  the  United  States  can  turn  over  to  Mr.  Ford  all  of  the  properties  that  he 
desires,  some  sort  of  an  arrangement  will  have  to  be  concluded  between  the 
United  States  and  the  Alabama  Power  Co.  which  will  undoubtedly  require 
a  substantial  money  consideration.  (Memorandum  of  Chief  of  Ordnance, 
p.  19.) 

Acting  Judge  Advocate  General  advised  that  on  date  contract  with  the  Alabama 
Power  Co.  was  executed  there  was  no  authority  under  existing  law  for  the  sale 
of  the  property  covered  in  the  contract,  and  that  the  Secretary  of  War  was 
without  authority  to  enter  into  a  contract  for  the  sale  of  said  property  or  for 
granting  an  option  for  the  purchase  thereof,  since  the  Constitution  vests  in 
Congress  the  sole  power  to  dispose  of  the  property  of  the  United  States.  (Memo- 
randum from  office  of  Judge  Advocate  General,  p.  24.) 

Acting  Judge  Advocate  General  advised  that  contract  with  the  General  Chemical 
Co.  provided  for  secrecy  in  the  use  of  its  patents  and  processes  at  nitrate  plant 
No.  1,  but  that  there  is  no  restriction  upon  the  sale  of  the  machinery  installed. 
(Memorandum  from  office  of  Judge  Advocate  General,  p.  24.) 

Mr.  Ford  is  bound  by  his  proposition  to  operate  nitrate  plant  No.  2,  but  there  is 
no  legal  obstacle  to  prevent  his  disposing  of  the  other  properties  to  which  he 
gets  title  (p.  8). 

There  should  be  some  assurance  that  the  contracts  made  by  Mr.  Ford's  proposed 
company  will  be  carried  out  or  some  penalty  imposed  for  failure  to  perform 
(p-  8). 

In  case  the  proposed  company  of  Mr.  Ford  sells  any  or  all  power  developed  at 
either  or  both  of  these  dams,  it  should  be  required  to  do  so  under  terms  and  con- 
ditions imposed  by  the  Federal  Power  Commission  or  the  Public  Service  Com- 
mission of  Alabama  in  the  manner  required  of  other  power  companies  (p.  9). 

Mr.  Weeks  suggests  that  there  will  be  a  considerable  difference  of  opinion  about 
whether  the  Alabama  Public  Service  Commission  or  the  Federal  Water  Power 
Commission  has  jurisdiction  over  a  matter  of  this  kind  in  the  Tennessee  River 
(p.  56). 

It  is  believed  that  the  construction  placed  upon  the  contract  provisions  by  the 
law  officers  of  the  Army  is  correct  and  would  be  sustained  in  the  event  these 
questions  should  later  arise.  In  any  event  Congress  may,  if  it  sees  fit,  ignore 
them.  (Memorandum  from  office  of  Judge  Advocate  General,  p.  25.) 

There  should  be  some  kind  of  forfeiture  in  case  Mr.  Ford  does  not  carry  out  the 
part  of  the  agreement  relating  to  the  manufacture  of  fertilizer,  without  the 
necessity  of  bringing  suit  implying  damages  (p.  29). 

Bringing  suit  for  damages  in  case  there  were  failure  to  carry  out  project  after  Mr. 
Ford  is  gone  might  bring  very  unsatisfactory  results  (p.  35). 

Does  not  like  to  see  the  Government  enter  into  any  contract  through  its  authorized 
agents  which  is  not  carried  out  (p.  33). 

Mr.  Ford  agrees  to  keep  nitrate  plant  No.  2  in  condition  for  100  years  for  the  use 
of  the  Government.    Mr.  Weeks  thinks  that  would  prevent  his  selling  it  (p.  48). 
National  defense. 

An  operating  plant  could  no  doubt  be  used  for  the  production  of  explosives  far 
soonet  than  a  plant  in  stand-by  condition  (p.  8). 

The  Ordnance  Department  aims  to  make  the  United  States  self-sustaining  in 
their  supply  of  nitrogen  compounds.  It  believes  that  .this  result  can  be 
achieved  only  through  the  fixation  of  atmospheric  nitrogen,  and  that  the  best 
method  of  developing  nitrogen  fixation  is  its  establishment  on  a  commercial 
basis.  (Memorandum  of  Chief  of  Ordnance,  p.  17.) 

If  the  Ford  offer  means  that  nitrate  plant  No.  2  will  be  operated  at  its  approxi- 
mate present  capacity  for  the  fixation  Of  nitrogen  it  is  most  satisfactory  from 
the  standpoint  of  nitrogen  preparedness.  (Memorandum  of  Chief  of  Ordnance, 
p.  17.) 

Eleven  million  dollars  appears  to  be  the  price  which  the  United  States  is  paying 
for  nitrogen  preparedness,  under  the  Ford  proposal.  (Memorandum  of  Chief 
of  Ordnance,  p.  19.) 


DIGEST  OF  STATEMENTS  ON   MUSCLE  SHOALS.  5 

Navigation. 

Construction  of  Dam  No.  '2  will  render  14.7  miles  navigable:  construction  of 
Dam  No.  o  will  improve  conditions  of  navigation  for  (io  additional  miles  (p.  5). 

Mr.  Weeks  would  not  advise  the  development  of  the  Tennessee  River  at  Muscle 
Qhoals  lor  navigation  purposes;  that  is,   would  not  appropriate  money  this 
year  (p.  62  >. 
Nitrate  plants. 

Xitrate  plant  No.  I  was  built  to  use  the  Haber  process.  Plant  is  now  in  idle, 
stand-by  condition,  with  part  of  land  leased  for  farm  purposes  (p.  5». 

Xitrate  plant,  Xo.  2  was  built  to  use  the  cyanamid  process.     Plant  is  now  in  an 
idle,  stand-by  condition,  except  that  its  power  plant  is  leased  to  the  Alabama 
Power  Co.,  the  lease  being  revocable  at  any  time  (p.  5). 
Power. 

Po\ver  is  being  transmitted  700  miles  in  California  (p.  34). 
Proposals  of  Mr.  Ford. 

Text  of  first  proposal  of  July  S:  1921  (pp.  10-12). 

Text  of  letter  of  January  11,  1922,  modifying  first  proposal  (p.  13). 

Tex.t  of  present  proposal  of  January  25,  1922  (pp.  13-17). 

Summary  of  present  proposal  (pp.  3-4,  6). 
Repairs,  maintenance,  and  operation  of  dams  and  locks. 

Paragraphs  4  and  8  of  Mr.  Ford's  proposal  proAide  that  his  company  i«  to  pay  to 
the  United  States  annually  the  sum  of  $35,000  on  Dam.Xo.  2  and  $20,000  on 
Dam  Xo.  3  for  repairs,  maintenance,  and  operation  of  the  dams,  gates,  and 
locks.  Congress  may  well  consider  whether  it  would  be  more  desirable  to 
have  Mr.  Ford  maintain  the  property  and  omit  these  pavments  Cp.  9). 

Payments  specified  for  the  operation  and  maintenance  of  the  dams  are  considered 
adequate  to  meet  all  ordinary  operation  and  maintenance  costs.     (Memo- 
randum of  Chief  of  Engineers,  p.  19.) 
Royalties. 

Xo  royalties  have  been  paid  on  nitrate  plant  No.  1.     Not  in  excess  of  $1,500  has 

been  paid  at  No.  2  (p.  44.) 
Salvage  value  of  plants. 

Table  showing  estimated  salvage  value  of  ordnance  property  in  the  State  of 
Alabama : 

Salvage  value  as  operating  concern $10, 032,  000 

Salvage  value  as  scrap 8,  812,  000 

Salvage  value  as  operating  concern  and  scrap 16,  272,  000 

(Memorandum  of  Chief  of  Ordnance,  p.  18.) 
Sinking  fund. 

The  annual  payments  specified  to  create  an  amortization  or  sinking  fund  of 
S48.000.000  at  the  termination  of  the  lease  are  relatively  small  in  amount. 
The  sum  eventually  produced,  with  the  value  of  the  dams  on  the  termination 
of  the  lease,  should  be  amply  sufficient  to  reimburse  the  United  States  for  the 
initial  capital  charge,  and  the  eventual  payment  of  the  costs,  hereafter  com- 
puted, of  carrying  the  expenditures  in  the  interval  before  the  full  payments 
begin.  (Memorandum  of  Chief  of  Engineers,  p.  19.) 
Value  of  plants. 

Mr.  Ford  offers  but  $5,000,000  for  the  title  to  the  two  nitrate  plants,  the  Waco 
quarry,  the  Gorgas- Warrior  steam  plant,  transmission  lines,  and  appurtenances. 
These"  properties  cost  the  United  States  approximately  $85.000,000.  As  scrap 
they  are  estimated  to  be  worth  $8,812,000.  However,  the  Chief  of  Ordnance 
believes  they  can  be  disposed  of  for  $16,272.000  (p.  8). 

Mr.  Weeks  thinks  the  Government  is  making  a  sacrifice  in  selling  plants  at 

$5,000,000  (p.  36). 
Warrior-Sheffield  transmission  line. 

The  Government  constructed  the  transmission  line  on  land  that  belongs  to  the 
Alabama  Power  Co.  (p.  40). 

DIGEST  OF  STATEMENT  OF  MAJ.  GEN.  C.  C.  WILLIAMS,  CHIEF  OF  ORDNANCE,  UNITED 

STATES  ARMY  (PP.  67-98). 

Alabama  Power  Co. 

Option  of  Alabama  Power  Co.  covers  property  valued  at  $4,979,382.33  (p.  81.) 
Costs  of  maintenance. 

Maintenance  cost  for  nitrate  plant  No.  2  in  fiscal  year  1921  was  $201,674.33,  and 
for  fiscal  year  1922  will  be  about  $125,000  (p.  85). 


6  DIGEST   OF   STATEMENTS   ON    MUSCLE   SHOALS. 

Estimates. 

Cost  of  changes  necessary  to  make  nitrate  plant  No.  1  a  working  plant,  retaining 

its  present  capacity,  estimated  at  about  $4,000,000  (p.  74). 
No  estimate  made  of  probable  cost  of  right  of  way  for  transmission  lines  from 

Gorgas- Warrior  steam  plant  to  nitrate  plant  No.  2,  which  Mr.  Ford  presupposes 

would  be  paid  for  by  United  States.     Would  probably  be  a  substantial  sum 

(p.  80). 
Table  giving  "Estimate  of  results  of  operation  by  Government  of  United  States 

nitrate  plant  No.  2,  for  period  of  six  years"  shows  excess  estimated  expenses 

over  estimated  receipts  of  $2,919,650  (pp.  84-85). 
Estimates  of  maintenance. 

Estimated  that  the  cost  of  maintaining  nitrate  plant  No.  2  in  idle  stand-by  for  a 

period  of  20  years  would  average  $100,000  per  year,  or  $2,000,000  for  the  20-year 

period,  plus  $2,000,000  for  replacements,  or  a  total  of  $4,000,000  for  the  20-year 

period  (p.  85). 
Gorgas- Warrior  steam  plant. 

Can  be  disposed  of  without  in  anywise  interfering  with  operation  of  nitrate  plant 
'       No.  2  (p.  79). 
If  salvaged,  the  Government  would  receive  three  fifths  of  what  Mr.  Ford  intends 

to  give  for  entire  Muscle  Shoals  property,  including,  the  Gorgas- Wan ior  plant 

(p.  80). 
Legal  questions  involved. 

Government  is  under  moral  obligation  to  deal  with  Alabama  Power  Co.  in  con- 
nection with  Gorgas- Warrior  steam  plant,  as  is  stated  in  the  contract  (p.  69). 
The  Gorgas- Warrior  steam  plant  was  paid  for  out  of  the  appropriation  for  arma- 
ment and  fortifications,  and  was  not  provided  for  under  the  national  defense 

act  (p.  77). 
National  defense. 

Guaranty  of  Mr.  Ford  to  keep  nitrate  plant  No.  2  in  operation  during  the  term 

of  his  lease  is  a  matter  of  vital  importance  to  the  Ordnance  Department. 

*    *    *    Whether  or  not  Mr.  Ford's  offer  is  accepted,  the  department  should 

recommend  that  nitrate  plant  No.  2  be  maintained  in  a  ^tand-by  condition 

whether  operated  or  not  (p.  73). 
Under   Ford   proposal,    Government  would    be  paying  $11,000,000  for   nitrate 

preparedness,  which  General  Williams  considers  a  very  moderate  sum  (pp. 

73-74). 
There  would  be  no  difficulty  in  disposing  of  Gorgas- Warrior  steam  plant  so  far 

as  preserving  nitrate  plant  No.  2  as  an  element  of  national  preparedness  is 

concerned  (p.  79). 
From  a  national-defense  point  of  view  the  upkeep  of  nitrate  plant  No.  2  is  the 

one  that  is  of  material  benefit  to  the  Government  (p.  83). 
War  Department,  from  the  standpoint  of  national  preparedness,  is  opposed  to 

scrapping  of  nitrate  plant  No.  2  (p.  84). 
Nitrate  Plant  No.  2. 

Has  a  power  plant  which  is  practically  sufficient  to  operate  it.     In  an  einergen-  v 

some  20,000  horsepower  would  be  needed  over  the  transmissi;  n  line  from  i    e 

Alabama  Co.'s  system  (p.  79). 
Salvage  estimates. 

The  smokeless-powder  plant  at  Nitre,  W.  Va.,  cost  $60,631,400.     The  estimated 

salvage  value  was  placed  at  $8,736,026.     The  sale  price  of  the  plant  was  18,- 

551,000  plus  a  storage  space  of  67,500  square  feet  for  two  years  valued  at  $33,750 

(p.  86). 
The  Old  Hickory  plant  ccst  $84,912,000.     The  estimated  salvage  value  was  placed 

at  $7,600,000.  *  The  sale  price  of  the  plant  was  $3,505,000  plus  a  storage  space  if 

866,000  square  feet  for  five  years,  valued  at  $1,082,500  (p.  86). 
Salvage  value  of  plants. 

Estimate  of  salvage  value  of  Gorgas- Warrirr  plant  based  on  Federal  Power  C<  in  mis- 
sion's estimate  of  $100  per  kilowatt,  which  makes  the  estimate  about  $3,000,000 

(pp.  79-80). 
Savings  to  the  Government. 

By  eliminating  Dam  No.  3,  selling  Gorgas- Warrior  steam  plant,  and  completing 

construction  of  Dam  No.  2,  the  Government  would  be  way  ahead  in  the  deal 

(p.  80). 
^  alue  of  plants. 

Considers  Mr.  Ford's  offer  of  $5,000,000  inadequate,  leaving  out  of  consideration 

any  advantages  that  come  to  the  Government  because  of  the  operation  cf  the 

plant  by  Mr.  Ford.     The  estimated  scrap  value  of  these  properties  is  $8,812,000, 


DIGEST   OF   STATEMENTS  OX    MUSCLE   SHOALS.  7 

Value  of  plants — Continued. 

and  if  arrangements  be  made  to  operate  certain  portions  of  them  and  scrap 
the  remainder,  the  estimated  value  is  $16,272,000  (p.  71). 

DIGEST  OF  STATEMENT  OF  MAJ.  GEN.  LANSING  H.  BEA<  H,  CHIEF  OF  ENGINEERS 
UNITED   STATES    ARMY  (PP.  98-131). 

Alabama  Power  Go. 

Has  stated  that  with  the  installation  of  a  new  unit  which  it  is  putting  in  at  Dun- 
cans Ripple,  on  the  Coosa  River,  it  will  be  more  than  supplied  with  power  for 
the  immediate  future  (p.  112  . 
Costs  of  maintenance. 

The  Engineer  Department  is  spending  about  $200,000  a  year  to  keep  the  Muscle 
Shoals  proposition  in  a  stand-by  condition.     The  properties  leased  to  the 
Alabama  Power  Co.  belong  to  the  Ordnance  Department,  and  they  state  they 
are  receiving  in  rentals  $120.000  a  year,  plus  certain  other  features  (p.  108). 
Dams. 

It  would  take  two  and  a  half  or  three  years  to  complete  Dam  No.  2,  provided  the 

work  was  not  interrupted  by  floods  or  disaster  of  any  kind  (p.  103). 
From  all  the  evidence  that  has  been  obtained  it  is  perfectly  practicable  to  build 

Dam  No.  3  (p.  129). 
Disposition  of  Muscle  Shoals  proposition. 

Believes  that  leasing  Dam  No.  2  to  Mr.  Ford  will  be  followed  by  a  development 
along  Tennessee  River  which  would  be  very  material,  and  would  probably 
amount  in  a  few  years  to  more  than  would  be  obtained  in  any  other  way  in  the 
course  of  a  generation  or  two  (p.  104). 
Estimates . 

There  is  very  little  difference  in  most  cases  between  Mr.  Ford's  unit  price  and  that 

of  the  Engineer  Department,  in  the  estimates  for  construction.     The  Engineer 

Department  figures  are  an  estimate  for  an  appropriation,  which  provides  for 

contingencies  (p.  102). 

Cost  to  make  Muscle  Shoals  stretch  of  the  Tennessee  River  navigable  without 

the  construction  of  Dams  Nos.  2  and  3,  estimated  at  $8,000,000  (p.  122). 
Flo  wage  rights. 

Understands  Mr.  Ford  to  mean  that  he  will  not  procure  the  flowage  rights,  but 
will  leave  it  to  the  Government  to  procure  them  by  its  right  of  eminent  domain. 
Mr.  Ford  does  not  say  that  the  cost  was  not  included  in  the  cost  of  construction, 
or  that  the  United  States  must  assume  all  cost  of  flowage  rights,  but  the  United 
States  inust  acquire  them  (p.  113). 
Ford,  Henry. 

Mr.  Ford  has  the  idea  that  he  would  like  to  stand  in  the  same  relation  to  the 
farmer  and  to  agricultural  pursuits  that  John  D.  Rockefeller  stands  in  toMay 
in  ralation  to  the  eradication  of  disease  and  the  promotion  of  medical  science 
(p.  105). 
Leases,  length  of. 

It  would  be  advisable  to  consider  the  conditions  of  business,  the  lack  of  an  imme- 
diate market  for  power,   and  other  circumstances,   very  carefully  and  see 
whether  they  were  not  such  as  to  justify  an  exception  to  the  rule  that  puts  the 
period  at  50 "years  (p.  111). 
Muscle  Shoals  Canal. 

Probable  annual  cost  of  Muscle  Shoals  Canal  runs  between  $30.000  and  $40,000. 
The  use  of  the  canal  would  cease  with  construction  of  Dam  Nos.  2  and  3  (pp. 
108-109). 
Muscle  Shoals  proposition.   • 

Those  who  came  to  consult  with  General  Beach  regarding  making  a  proposition 
were  told  that  the  United  States  did  not  desire  to  install  the  power  plant  for 
the  purpose  of  being  a  disturbing  element  to  vested  interests;  that,  other  things 
being  equal,  preference  would  be  given  that  proposal  which  fitted  in  best  with 
existing  conditions  and  did  not  destroy  established  business  (p.  102). 
National  defense. 

Nitrate  preparedness  is  of  first  importance.     The  United  States  should  not  be 
placed  in  such  a  position  that  in  case  of  hostilities  it  would  have  to  depend 
upon  nitrates  from  a  foreign  source  of  supply  (p.  103). 
Navigation. 

Development  of  navigation  of  Tennessee  River  is  of  great  importance.     It  is  one 
of  the  richest  rivers  in  the  country  in  regard  to  mineral  deposits  along  its  banks. 


8  DIGEST   OF  STATEMENTS  ON   MUSCLE  SHOALS. 

Navigation — Continued . 

There  are  immense  coal  fields  in  eastern  Tennessee  which  have  not  been  touched 
(p.  104). 

Estimate  of  cost  to  make  the  Muscle  Shoals  stretch  of  the  Tennessee  River  navi- 
gable without  the  construction  of  Dams  Nos.  2  and  3  is  something  over  $8  000  000 
(p.  122). 

DIGEST  OF  STATEMENT  OP  COL.  JOHN  A.  HULL,  ACTING  JUDGE  ADVOCATE  GENERAL, 
UNITED  STATES  ARMY  (PP.  131-205). 

Legal  questions  involved. 

The  sale  and  lease  of  property  involved  in  the  Muscle  Shoals  plant  is  entirely  a 
question  for  Congress  to  decide  (pp.  173,  178-179). 

On  nitrate  plant  No.  2  we  [the  Government]  have  a  number  of  processes  which, 
under  the  contract  we  have,  we  could  transfer,  and  which,  under  the  contract 
with  Mr.  Ford,  he  has  an  option  on.  Whether  he  will  take  them  or  not  depends 
upon  his  investigation.  If  he  does  take  them  and  produces  any  nitrate 
there,  under  these  patents  he  must  pay  a  royalty  which  amounts  to  about  $12 
a  ton  (p.  179). 

The  options  of  the  Alabama  Power  Co.,  the  Air  Nitrates  Corporation,  and  the 
American  Cyanimid  Co.  to  purchase  are  nonenforceable  unless  ratified  by  Con- 
gress (pp.  173,  194). 

The  option  of  the  Alabama  Power  Co.  to  purchase  purporting  to  be  given  by  the 
contract  is  unauthorized  and  void;  there  is  no  authority  for  the  sale  of  this 
•  plant  or  any  part  thereof.  This  conclusion  is  based  specifically  on  article  4, 
section  3,  clause  2,  of  the  Constitution,  which  reads,  in  part,  as  "follows:  "The 
Congress  shall  have  power  to  dispose  of  and  make  all  needful  rules  and  regula- 
tions respecting  the  territory  or  other  property  belonging  to  the  United  States." 
Section  124  of  the  national  defense  act  also  forbids  the  entering  into  contracts 
with  any  private  concern  on  the  part  of  the  United  States.  This  law  was 
passed  a  year  and  a  half  before  the  contract  with  the  Alabama  Power  Co.  was 
made  (p.  134). 

The  comment  made  in  the  preceding  paragraph  upon  the  option  of  the  Alabama 
Power  Co.  applies  also  to  the  claims  of  the  Air  Nitrates  Corporation  and  the 
American  Cyanimid  Co.  (p.  135). 

Under  the  contract  with  the  General  Chemical  Co.,  the  obligation  of  secrecy  as 
to  processes  has  expired  by  reason  of  the  fact  that  the  contract  is  no  longer 
recognized  by  the  General  Chemical  Co.,  and  whatever  the  Government  has 
there  is  a  matter  of  general  information  obtained  from  abroad  after  the  war 
(p.  173). 

The  contract  with  the  General  Chemical  Co.  relating  to  nitrate  plant  No.  1  has 
•  practically  terminated  (p.  179). 

The  lower  courts  have  held  that  the  United  States  has  power  to  condemn  property, 
thje  title  to  which  is  not  in  the  United  States,  but  upon  which  buildings  have 
been  constructed,  which  are  the  property  of  the  United  States  (p.  194). 

It  may  take  several  years  before  the  Government  can  complete  the  title,  by  con- 
demnation, to  the  lands  now  owned  by  the  Alabama  Power  Co.  (p.  198). 

The  first  thing  the  Government  ought  to  do  to  determine  the  stability  of  the  Ala- 
bama Power  Co.'s  interest  in  order  to  commence  action  on  the  construction  of 
the  contract,  would  be  to  proceed  to  condemn  the  lands,  and  acquire  the  fee 
(pp.  202-203). 

The  Government  is  responsible  for  any  obligations  outstanding  at  the  time  Mr. 
Ford  takes  over  the  property  (p.  200). 

Mr.  Ford  could  make  his  estate  liable  for  the  fulfillment  of  his  contract,  and  the 
estate  in  Michigan  would  be  bound  under  the  existing  law  (p.  179\ 

Clause  in  section  19,  "And  all  the^ necessary  contracts,  leases,  deeds,  and  other 
instruments  necessary  or  appropriate  to  effectuate  the  purposes  of  this  proposal 
shall  be  duly  executed  and  delivered  by  the  respective  parties  above  men- 
tioned," is  not  an  offer  of  Mr.  Ford  to  guarantee  (pp.  195-197). 

Under  section  14  Mr.  Ford  would  be  bound  to  produce  fertilizer  to  the  maximum 
capacity  of  plant  No.  2  (p.  179). 

Mr.  Ford  is  bound,  under  section  14,  to  start  producing  at  plant  No.  2  without  any 
installation  (p.  191). 

Mr.  Ford's  company  does  not  obligate  itself  to  get  his  manufactured  product,, 
commercial  fertilizer,  into  the  hands  of  the  farmer;  he  can  dispose  of  it  in  any 
way,  subject  only  to  the  control  of  the  board  which  is  provided  for  in  the  con- 
tract (p.  184). 


DIGEST  OF  STATEMENTS  ON  MUSCLE  SHOALS.  9 

Legal  questions  involved — Continued. 

The  board  provided  for  in  section  15  is  not  a  permanent  guaranty  that  Mr.  Ford 
would  be  under  the  surveillance  of  the  farmers.  There  is  nothing  in  the  con- 
tract that  would  guarantee  the  continuance  of  this  board  if  the  organizations 
represented  were  out  of  existence  and  had  no  successors;  in  that  case  there 
would  have  to  be  an  agreement  between  the  Government  and  Mr.  Ford,  or 
it  would  have  to  be  referred  to  a  court  of  equity  (p.  200). 

Mr.  Ford  is  obligated  to  keep  apace  with  developments  in  the  production  of 
commercial  fertilizer,  and  has  to  produce  at  the  maximum  given  capacity 
(p.  201). 

Under  clause  B  of  article  14  Mr.  Ford  would  be  obliged  to  rebuild  nitrate  plant 

No.  2  in  case  of  its  being  destroyed  by  fire  or  any  other  cause  (p.  202). 
National  defense. 

Mr.  Ford  would  be  obligated  at  all  times  to  keep  nitrate  plant  No.  2  in  readiness 
to  manufacture  materials  necessary  in  time  of  war  for  the  production  of  ex- 
plosives (pp.  201-202). 

DIGEST  OF  STATEMENT  OF  MAJ.  J.  H.  BURNS,  ORDNANCE  DEPARTMENT,  UNITED 
STATES  ARMY  (PP.  70-71,  207-240). 

Air  Nitrates  Corporation. 

Capitalization  was  $1,000.  It  received  a  cost-plus  fee,  and  a  fee  has  been  paid 
to  the  amount  of  $1,150,000.  They  are  claiming  $1,500,000.  (pp  232,  238). 

Has  no  money  invested  in  Muscle  Shoals,  so  fas  as  Major  Burns  knows  (p.  236). 
Alabama  Power  Co. 

If  condemnation  proceedings  are  instituted  the  Government  would  be  required 

to  pay  the  Alabama  Power  Co.  a  fair  value  for  the  property  taken  over  from  them 
and  the  damage  caused  to  them.  Major  Burns  thinks  these  damages  would 
be  very  high  (pp.  213,  224). 

Property  involved  in  contract  between  the  Alabama  Power  Co.  and  the  Govern- 
ment includes  land  on  which  the  Gorgas- Warrior  steam  plant  is  located,  the 
land  on  which  the  transmission  line  is  located,  and  the  damages  to  the  Gorgas 
plant  that  would  be  caused  by  the  Government  taking  that  land  away  from 
them  and  giving  Mr.  Ford  a  clear  title  to  the  plant  site  (p.  224). 
American  Cyanamid  Co. 

Has  no  money  invested  in  Muscle  Shoals,  so  far  as  Major  Burns  knows  (p.  236). 
Ammonium  sulphate. 

Estimates  price  at  which  Mr.  Ford  can  produce  ammonium  sulphate  (p.  216). 
Costs. 

Government  power  plant  at  nitrate  plant  No.  2  cost  the  Government  $12,000.000 

(p.  218). 
Disposition  of  Muscle  Shoals  proposition. 

Recommends  that  nitrate  plant  No.  1  be  sold  (p.  222). 

If  Major  Burns  had  farmers'  interests  solely  at  heart,  he  would  say  that  the  Ford 

offer  is  good.     If  he  were  a  fertilizer  man.  would  say  that  the  Ford  offer  is  not 

good.     He  thinks  that  it  has  great  possibilities  for  developing  the  country  and 

that  it  would  be  beneficial  from  the  standpoint  of  nitrate  preparedness  (p.  238). 

Estimates. 

Estimates  that  the  cost  of  putting  in  an  ammonium  sulphate  plant  equt  to 
capacity  of  nitrate  plant  No.  2  would  require  a  capital  expenditure  of  $3,000,000 
(pp.  209,  220). 
Gorgas-Warrior  steam  plant. 

Government  must  sell  to  the  Alabama  Power  Co.,  and  if  the  Alabama  Power  Co. 
is  unwilling  to  purchase  then  the  Government  must  remove  the  plant  (p.  210). 

Nitrate  plant  No.  2  could  run  at  practically  full  capacity  without  Gorgas-Warrior 
steam  plant  because  the  Government  has  completed  a  60,000-kilowatt  plant  at 
Muscle  Shoals  (pp.  210,  235). 

Unless  this  plant  can  be  eliminated  by  further  conference  between  Mr.  Ford 
and  representatives  of  the  Government,  the  Government  should  not  consider 
Mr.  Ford's  proposition  (p.212). 

Is  part  of  the  Alabama  power  plant.  Each  interest  has  a  boiler  plant  and  a  gen- 
erating plant  included  here.  However,  the  electricity  is  all  handled  over  the 
same  switchboard  within  the  plant.  The  water  for  the  feeding  of  both  sets  of 
boilers  comes  through  the  same  intake  from  the  Warrior  River.  The  ash- 
handling  equipment  is  common,  and  the  coal-feeding  equipment  is  common 
(p.  213). 

Would  not  affect  Ford  offer  if  it  were  left  out  (p.  214). 


10  DIGEST   OF   STATEMENTS   ON    MUSCLE   SHOALS. 

Legal  questions  involved. 

Gist  of  article  22  of  contract  with  Alabama  Power  Co.  is  that  at  a  certain  period 
after  the  war  is  terminated  it  is  agreed  that  the  Government  will  sell  to  the 
Alabama  Power  Co.  the  properties  of  all  kinds  that  are  included  in  the  contract 
at  a  price  to  be  determined  by  a  board  of  arbitrators,  one  arbitrator  to  be  selected 
by  the  Alabama  Power  Co.,  one  to  be  selected  by  the  Government,  and  the  third 
to  be  selected  by  the  other  two  (p.  70). 

Government  can  give  a  clear  title  to  nitrate  plant  No.  2  (p.  213). 

Mr.  Ford  is  obligated  to  continue  to  use  nitrate  plant  No.  2  for  the  output  of 
ammonium  nitrate  (p.  220). 

The  Government  must  institute  condemnation  proceedings  and  take  over  the 
Gorgas-Warrior  steam  plant,  or  sell  it  to  the  Alabama  Power  Co.  (p.  227). 

Believes  Alabama  Power  Co.  contract  should  be  lived  up  to,  even  though  it  means 
the  rejection  of  the  Ford  offer  (p.  229). 

Government's  interests,  as  a  matter  of  policy,  would  be  best  protected  if  it  insisted 
upon  living  up  to  the  contract  with  the  Alabama  Power  Co.  (p.  237). 

Major  Burns  thinks  that  if  the  American  Cyanamid  Co.  claims  the  right  to  pur- 
chase nitrate  plant  No.  2,  there  is  an  obligation  on  the  part  of  the  Government 
to  live  up  to  the  contract.  He  thinks,  however,  that  this  option  will  not  be 
an  impediment,  because  he  believes  that  the  company  would  not  give  the 
United  States  what  Mr.  Ford  is  agreeing  to  give  (p.  239). 
National  defense. 

If  Mr.  Ford's  offer  means  that  he  will  run  the  Muscle  Shoals  plant  as  a  nitrogen 
fixation  plant,  it  will  be  a  very  great  additional  benefit  to  the  Government  from 
the  standpoint  of  preparedness  (p.  215). 
Waco  quarry. 

Was  constructed  solely  for  the  purpose  of  supplying  limestone  to  nitrate  plant 
No.  2,  limestone  being  one  of  the  raw  materials  necessary  (p.  209). 

DIGEST  OF  STATEMENT  OF  MR.  WILLIAM  B.  MAYO,  CHIEF  ENGINEER  OF  THE  FORD 
MOTOR  Co.,  DETROIT,  MICH.  (PP.  241-311,  383,  971-f" 


Capital  investment  of  Mr.  Ford's  company. 

Investment  in  project  to  start  with  would  be  cost  plus  operating  capital  (p.  242). 

Investment  in  project  by  Mr.  Ford  will  probably  be  $25,000,000  or  $30,000,000 
within  a  few  years  (p.  259). 

Would  be  necessary  to  expend  in  excess  of  $50,000,000  in  a  manufacturing  plant 
in  order  to  use  total  power  producible;  Mr.  Ford  intends  to  spend  what  is  neces- 
sary to  develop  plant  to  use  all  the  power  (p.  282). 

Investment  in  fertilizer  plant  by  Mr.  Ford  will  probably  be  $5,000,000  to  start 
with  (p.  308). 

Investment  in  project  by  Mr.  Ford  will  not  exceed  $50,000,000  (p.  383). 

In  the  altered  contract  Mr.  Ford  has  had  inserted  in  paragraph  1,  line  2,  after 
''company,"  "with  a  paid  capital  stock  of  not  less  than  $10,000,000"  (p.  971). 

Mr.  Mayo's  Opinion  is  that  the  whole  $10,000,000  would  be  used  in  developing  the 
plant.  He  imagines  that  the  investment  will  be  twice  that  amount  (p.  978). 
Dams. 

Maximum  time  needed  for  construction  of  dams  would  be  two.  years  (p.  269). 

Flowage  rights  can  be  purchased  at  maximum  sum  of  $1,500,000,  and  cost  should 
be  charged  to  navigation  (p.  247). 

Deficit  to  the  Government  in  interest  payments  during  construction  and  tor  nrst 
six  years  under  Ford  proposal  will  be  $7,359,800.  This  is  $5,960,200  less  de- 
ficiency in  interest  during  this  preliminary  period  than  is  stated  by  the  Chief 
of  Engineers  in  his  report  of  January  30,  1922.  His  estimate  of  this  deficiency 
is  $13,320,000  (p.  248). 

Mr.  Ford's  engineers  estimate  $500,000  as  cost  to  the  Government  for  clearing 
title  to  property  to  be  transferred  to  Mr.  Ford  (p.  249). 

Total  new  money  that  must  be  spent  by  the  Government  to  carry  out  P  ord  oner 

will  not  exceed  $45,000,000  (p.  249). 
Fertilizer. 

Mr.  Ford  intends  to  produce  a  complete  fertilizer  at  8  per  cent  above  cost  at 
nitrate  plant  No.  2  (p.  253). 

Mr.  Ford  hopes  to  start  producing  fertilizer  within  a  year  (p.  257). 

Mr  Ford  would  manufacture  about  20  per  cent  of  amount  of  fertilizer  used  m 
United  States  (p.  259). 

Getting  cheap  power  will  be  one  of  the  principal  reasons  for  being  able  to  make 
cheap  fertilizer  (p.  279). 


DIGEST   OF   STATEMENTS   OX    MUSCLE   SHOALS.  11 

Fertilizer — Continued. 

Mr.  Ford  will  be  able  to  produce  fertilizer  at  one-half  the  cost  of  production  by 
other  firms  (p.  284). 

Safe  to  figure  that  Mr.  Ford  will  be  able  to  produce  fertilizer  at  33  J  per  cent  cheaper 
than  is  now  being  produced;  he  hopes  to  make  it  50  per  cent  (p.  303). 

Mr.  Ford  would  manufacture  from  a  minimum  of  200,000  tons  of  fertilizer  up  to 
a  maximum  of  2,000,000  tons,  depending  upon  the  class  of  the  product  (p.  308). 
Financing  by  the  Government. 

Basis  of  financing  of  Mr.  Ford's  offer  figured  on  Government  lending  its  credit  at 
4  per  cent  (p.  268). 

Bonds  could  be  issued  by  the  Government  in  blocks,  at  4  per  cent,  for  payment 

of  construction  of  dams  (pp.  272,  980). 
Flowage  rights. 

Flowage  rights  can  be  purchased  at  maximum  sum  of  $1,500,000,  and  cost  should 

be  charged  to  navigation  ip.  247). 
Gorga.s- Warrior  steam  plant. 

Mr.  Ford  has  never  indicated  that  he  would  consider  the  proposition  without 

the  Gorgas- Warrior  plant  (p.  975). 
Leases,  length  of. 

Mr.  Ford  would  not  consider  the  Muscle  Shoals  proposition  under  a  50-year  lease 
i  p.  285  i. 

Mr.  Ford  stands  pat  on  the  100-year  proposition.  This  proposition  Mr.  Ford  does 
not  consider  under  the  Federal  power  act.  The  point  at  issue  is  that  Mr.  Ford 
considers  the  investment  too  large  to  take  the  risk  for  a  50-year  period.  This  is 
not  a  straight  water-power  project,  it  is  'a  combination  of  many  things;  the 
investment  in  the  industrial  plant  will  greatly  exceed  that  in  the  water  power 
i  pp.  971-972). 
Leases,  renewal  of. 

Preferred  claim  of  Mr.  Ford's  company  to  be  furnished  with  power  after  100-year 
period  only  a  fair  proposition  as  the  company  would  have  a  large  investment 
built  up  around  the  dams,  which  would  be  of  no  value  without  power  (pp.  285- 
286,  304-306,  973-975,  975-976). 

Mr.  Ford's  company  should  have  the  preference  to  obtain  power  after  the  100-year 
period.  The  company  will  have  kept  the  plant  in  order  for  100  years,  'will 
have  invested  a  great  deal  of  money,  and  the  point  is  the  company  can.not  be 
left  with  a  very  large  investment  there  and  with  no  power.  Any  change  in 
the  language  that  would  so  fix  it  that  it  is  not  possible  to  take  the  power  from 
under  the  company's  feet  would  be  agreeable  (pp.  973,  982-987). 
Legal  questions  involved. 

Sale  of  power  by  Mr.  Ford  would  probably  come  under  State  of  Alabama  law 
(p.  243). 

Clause  might  be  added  to  Mr.  Ford's  contract  to  protect  the  Government  against 
his  mortgaging  property  (p.  281). 

Amount  of  money  that  Mr.  Ford  has  to  put  into  proposition  as  working  capital  to 
stait  with,  is  sufficient  guaranty  (p.  300). 

Mr.  Ford  could  not  legally  discontinue  manufacture  of  fertilizer  until  he  had 
exhausted  every  known  effort  to  make  cheap  fertilizer  (pp.  302,  309). 

Mr.  Ford  would  not  object  to  clause  being  added  in  the  deed,  regarding  produc- 
tion of  explosives  in  time  of  war  at  nitrate  plant  No.  2  (p.  303). 

Mr.  Ford  would  not  be  wil  ing  to  take  over  any  legal  work  in  reference  to  segre- 
gating the  Government's  rights  from  the  rights  of  the  Alabama  Power  Co.  (p. 

When  plants  are  conveyed  to  Mr.  Ford's  company  that  company  will  take  them 

subject  to  the  existing  contracts  entered  into  by  the  Government  and  the  Air 

Nitrates  Corporation  and  the  American  Cyanamid  Co.  regarding  the  operation 

of  the  plants  and  the  pavment  of  royalties  (p.  980). 
Mr.  Ford  does  not  think  the  Government  will  have  any  litigation  to  speak  of  in 

connection  with  its  contracts  with  the  Alabama  Power  Co. "and  the  Air  Nitrates 

Corporation  (p.  987). 
National  defense. 

Value  to  the  Government  of  nitrate  plant  No.  2.  when  operated  according  to 

section  16  of  Mr.  Ford's  contract,  given  by  Major  General  Williams  as  $11.000.000 

appears  reasonable  (p.  295). 
Navigation. 

Construction  of  dams  would  increase  navigability  of  river  by  about  90  miles 

(p.  295). 


12  DIGEST   OF  STATEMENTS  ON   MUSCLE  SHOALS. 

Phosphates. 

Phosphates  can  be  obtained  within  a  radius  of  100  miles  of  nitrate  plant  No    2 

(p.  281). 
Potash. 

Possibility  of  working  out  process  whereby  potash  may  be  made  at  or  near  nitrate 

plant  No.  2  (p.  283). 
Plans  of  Mr.  Ford. 

Nitrate  plant  No.  1  is  to  be  used  for  manufacturing  automobile  parts  (p.  258). 

Mr.  Ford  intends  to  use  all  power  he  will  produce;  is  not  a  question  of  selling 

power  (pp.  262,  265). 
Power. 

Power  from  Gorgas- Warrior  steam  plant  cheaper  than  at  plant  No.  2,  because 
transportation  of  coal  is  not  necessary  (p.  257). 

Power  which  will  be  generated  will  be  approximately  230,000  primary  and 
650,000  secondary  horsepower  (pp.  262,  275-276). 

Since  Mr.  Ford's  payments  to  the  Government  for  power  purposes  total  $1,781,746 
annually,  he  pays  as  rental  for  primary  power,  on  the  basis  of  the  Chief  of  En- 
gineer's estimate  of  the  absolute  primary  power  at  Dams  Nos.  2  and  3,  2.9  mills 
per  kilowatt  hour,  or  $18.95  per  horsepower-year  on  a  100  per  cent  load  factor 
basis.  Mr.  Ford  pays  for  the  power  whether  he  uses  it  or  not.  No  one  has 
ever  attained  a  100  per  cent  load  factor  in  the  practical  operation  of  any  indus- 
trial plant.  If  Mr.  Ford  has  an  average  load  factor  of  54  per  cent,  on  the  above 
basis  his  primary  power  will  cost  him  about  5.3  mills  per  kilowatt-hour,  or 
$34.61  per  horsepower  year  (pp.  265-266). 

Mr.  Mayo  does  not  imagine  there  is  a  demand  within  200  miles  of  Muscle  Shoals 

for  possibly  over  one-third  of  total  power  producible  (p.  282). 
Savings  to  the  Government. 

Saving  to  the  Government  would  be  approximately  $16,000,000  if  contracts  for 
construction  of  dams  were  handled  by  a  private  party  instead  of  by  the  Gov- 
ernment (pp.  300-301). 

Government  balance  sheet  presented  showing  net  total  credit  to  the  Government 
of  $9,090,200  at  end  of  first  six  years  it'  the  Government  completes  the  dams 
under  the  terms  of  the  Ford  proposal  (p.  301). 
Sinking  fund. 

Sinking  fund  to  be  established  by  Mr.  Ford  would  wipe  out  cost  of  construction 
of  dams  and  over  $70,000,000  in  the  100  years,  if  invested  by  the  Government 
at  4$  percent  (p.  247). 

The  table  presented  illustrating  decrease  in  net  investment  of  Government  due 
to  operation  of  a  sinking  fun.d,  investments  of  which  bear  4  per  cent  interest, 
payable  annually,  shows  total  amount  in  sinking  fund  at  end  of  100  years  to 
be  $60,163,271;  the  Government's  net  investment,  nothing  (p.  299). 

DIGEST  OF  STATEMENT  OF  DR.  RICHARD  C.  TOLMAN,  DIRECTOR  FIXED  NITROGEN 
RESEARCH  LABORATORY,  DEPARTMENT  OF  AGRICULTURE  (PP.  313-319). 

Disposition  of  Muscle  Shoals  proposition. 

The  Department  of  Agriculture  believes  that  the  farmers  would  be  benefited  by 
the  operation  of  the  Muscle  Shoals  plant  to  produce  fixed  nitrogen  for  use  in 
fertilizers!  The  department  looks  with  favor  on  the  Ford  proposal,  if  its  terms 
are  sufficiently  definite  and  binding  to  make  sure  that  the  plant  will  be  oper- 
ated continuously  for  the  manufacture  of  fertilizer  (p.  316). 
Nitrate  plants. 

Nitrate  plant  No.  2  as  it  stands  will  only  manufacture  ammonium  nitrate.  Addi- 
tions could  be  made  in  varying  amounts  to  manufacture  a  variety  of  fertilizer 
materials  (pp.  314-315). 

If  the  Muscle  Shoals  plant  is  to  be  run  commercially  to  produce  ammonium  sul- 
phate as  its  main  product,  the  plant  can  not  pay  expenses.  If  the  plant  is 
developed  for  a  variety  of  materials,  including  ammonium  nitrate,  ammonium 
sulphate,  urea,  and  special  chemicals  of  various  kinds,  Doctor  Tolman  thinks 
the  plant  can  be  made  a  commercial  success  (p.  316). 

There  is  an  opportunity  for  the  production  of  nitrates  at  plant  No.  1  under  the 
Haber  process.  Doctor  Tolman  believes  the  Haber  process  a  very  important 
one  (p.  316). 


DIGEST   OF   STATEMENTS  ON   MUSCLE  SHOALS.  13 

DIGEST  OF  STATEMENT  OF  HON.  A.  A.  TAYLOR,  GOVERNOR  OF  TENNESSEE 

(PP.  319-322). 

Disposition  of  Muscle  Shoals  proposition. 

No  corporation  should  bear  the  name  of  Tennessee  and  Alabama  which  opposes 
the  immediate  acceptance  of  the  Ford  offer  by  this  committee.  The  Alabama 
Power  Co.  ought  to  withdraw  its  contentions,  however  righteous  they  are,  or 
the  Alabama  Power  Co.  ought  to  change  its  name.  No  man,  no  interest,  no 
corporation  can  oppose  the  Ford  offer  and  be  a  friend  to  Tennessee  and  Ala- 
bama and  their  people  and  the  people  of  the  South  (p.  320). 

Mr.  Edison  has  said  that  the  immensity  of  power  to  be  generated  by  the  plant 
when  completed  was  impossible  to  conceive,  and  at  the  same  time  he  said 
that  Mr.  Ford  is  the  man  to  take  hold  of  it  and  operate  it.  He  is  the  man  because 
of  his  ability,  because  of  his  sound  judgment,  and  because  he  has  the  money 
(p.  320). 

DIGEST  OF  STATEMENT  OF  DR.  MILTON  WHITNEY,  CHIEF  of  THE  BUREAU  OF 

SOILS,  DEPARTMENT  OF  AGRICULTURE  (PP.  332-349). 
Fertilizer. 

Concentrated  fertilizer  has  got  to  be  adopted  to  dispose  in  the  most  ready  and 

efficient  way  of  fixed  nitrogen  products  (p.  334). 

It  is  difficult  to  say  what  the  annual  increase  in  demand  for  fertilizer  is.  The 
best  figures  we  have  show  that  it  is  about  1\  per  cent  per  annum  (p.  335). 

We  are  not  dependent  upon  the  products  of  foreign  countries.  We  have  all  the 
fertilizer  compounds  within  the  United  States,  if  we  will  but  develop  them; 
but  it  is,  at  present,  cheaper  tc  get  nitric  acid  from  Chile  and  muriate  of  potash 
from  Germany,  because  we  have  not  developed  our  own  processes  here  (p.  335). 

In  1920  Doctor  Whitney  estimated  that  we  were  using  227,888  tons  of  ammonia. 
If  the  country  as  a  whole  used  fertilizers  in  proportion  to  the  use  in  Georgia, 
which  was  at  that  time  160  pounds  per  acie  of  land  in  crops,  we  would  require 
751,945  additional  tons  of  ammonia.  The  intensity  of  the  use  of  fertilizer 
in  Germany  at  that  time  w.as  180  pounds  per  acre  of  land  in  crops;  in  England 
about  160  pounds,  so  that  the  intensity  of  use  in  Georgia  was  about  the  same 
as  the  English  practice.  There  were  seven  States  using  fertilizer  more  inten- 
sively than  Georgia.  If  we  should  extend  the  use  of  fertilizer  over  the  remain- 
ing acres  of  land  in  crops  it  would  require  751,000  tons  increase  over  the  227,000 
tons  we  are  now  using.  Doctor  Whitney  thinks  this  is  a  conservative  figure, 
and  yet  it  is  looking  long  into  the  distance  (p.  336). 

Just  now  we  have  a  surplus  of  fertilizer  material,  but,  under  normal  conditions 
we  would  expect  a  demand  for  about  8,000,000  tons.  If  it  had  not  been  for 
the  war  it  would  have  been  at  this  time  about  9,000,000  or  10,000,000  tons. 
The  limitations  en  the  amount  of  nitrogen  by  the  increase  in  the  use  of  ferti- 
lizers, and  particularly  by  the  increase  in  the  amount  that  is  fed  to  cattle, 
would  make  it  very  difficult  for  us  to  manufacture  normally  now  10,000,000 
tons  of  fertilizers  (p.  348). 

There  is  a  difference  in  practice  in  the  use  of  formulas  between  the  North  and  the 
South.  In  the  northern  States  the  ammonia  is  always  given  first,  and  that 
would  be  3-8-3,  three  parts  ammonia,  8  parts  of  phosphoric  acid,  and  three 
of  potash.  In  the  Southern  States  the  phosphoric  acid  is  invariably  given 
first,  and  the  same  formula  would  be  written  8-3-3  (p.  348). 
Nitrogen. 

Regardless  of  what  any  interests  say,  it  is  the  deliberate  feeling  of  the  scientific 
men  of  the  world  that  the  time  has  come  when  it  is  essential  for  agriculture 
that  we  have  an  independent  source  of  supply  of  fixed  nitrogen  (p.  322). 

The  fixed  nitrogen  products  that  are  obtained  from  either  the  Haber  process  or 
the  cyanamid  process  are  essential  to  the  future  welfare  of  this  country  (p.  329). 

Nitrate  plant  No.  2  will  produce  about  40,000  tons  of  nitrogen,  or  110,000  tons  of 
ammonium  nitrate,  or  190,000  tons  of  ammonium  sulphate;  and  we  are  using 
about  227,000  tons  of  nitrogen  (p.  348). 
Potash. 

There  are  known  deposits  in  Alabama  and  Georgia;  there  are  deposits  of  shale 
near  the  Muscle  Shoals  that  carry  about  8  per  cent  of  potash.  There  are  depos- 
its in  Illinois  and  throughout  the  country  (p.  335). 

100774—22 2 


14  DIGEST   OF   STATEMENTS   ON    MUSCLE   SHOALS. 

DIGEST  OF  STATEMENT  OF  MR.  J.  W.  WORTHINGTON,  CHAIRMAN  OF  THE  EXECUTIVE 
COMMITTEE  OF  THE  TENNESSEE  RIVER  IMPROVEMENT  ASSOCIATION  (PP.  351-408). 

Alabama  Power  Co. 

la  not  a  foreign  corporation,  but  is  probably  controlled  by  a  Canadian  company 

(p.  362). 
Capital  investment  of  Mr.  Ford's  company. 

Has  the  impression  that  it  would  finally  run  to  forty  or  fifty  million  dollars 

(pp.  381-383). 
Electrification  of  railroads. 

President  of  the  Louisville  &  Nashville  Railroad  stated  that  if  Mr.  Ford  developed 
the  power  at  Muscle  Shoals  and  would  let  the  L.  &  N.  have  it,  he  would  elec- 
trify one  of  the  divisions  of  the  L.  &  N.— the  one  running  into  Muscle  Shoals 
(p.  355). 
Estimates. 

Mr.  Ford  thought  that  the  work  on  the  dams  and  power  houses,  not  including 
the  navigation  locks,  would  cost  the  Government  about  $30,000,000  (p.  383). 
Fertilizer. 

Mr.  Ford  would  produce  about  2,000,000  tons  per  annum  of  the  2-8-2  mixture 

(pp.  366,  367). 

It  would  be  impossible  for  Mr.  Ford  to  state  in  his  offer  that  everything  manu- 
factured at  nitrate  plant  No.  2  is  to  be  used  for  the  manufacture  of  fertilizer 
and  for  no  other  purpose  (p.  366). 
Mr.  Ford  has  stated  that  it  was  entirely  possible  that  the  fertilizer  end  of  this 

development  would  be  the  major  end  (p.  379). 

It  would  be  impossible  to  market,  in  such  quantity  of  production,  the  product 
of  nitrate  plant  No.  2  for  other  purposes  than  the  production  of  fertilizer  (p.  390). 
Nitrate  plant  No.  2  is  better  situated  for  the  economical  manufacture  of  ferti- 
lizer than  any  place  in  the  United  States,  the  raw  material  being  available 
there  (p.  398). 
Financing  by  the  Government. 

Government  is  lending  its  credit  to  Mr.  Ford,*  which  credit  is  not  to  exceed  4 

per  cent  (p.  373). 
Gorgas- Warrior  steam  plant. 

Interests  of  the  Government  can  be -separated  from  those  of  the  Alabama  Power 

Co.  (p.  361). 
Haber  process. 

Admittedly  has  never  been  a  success  at  nitrate  plant  No.  1  (p.  364). 
Leases,  length  of. 

There  ought  to  be  a  longer  period  of  time  for  a  700,000-horsepower  project  than  50 

years  (p.  394). 
Lagal  questions  involved. 

Considers  that  in  section  14  of  his  proposal,  Mr.  Ford  binds  himself  to  produce 
the  approximate  annual  capacity  of  the  present  plant  and  that  can  be  stated 
at  110,000  tons  of  ammonium  nitrate  and  the  equivalent  thereof  (p.  381). 
National  defense. 

Mr.  Ford  binds  himself  to  maintain  nitrate  plant  No.  2  as  a  plant  that  would  fix 

nitrogen  for  use  in  the  manufacture  of  explosives  (p.  403). 
Navigation. 

There  are  no  facilities  now  at  Muscle  Shoals  in  aid  of  navigation,  and  the  dam  has 
progressed  in  its  construction  to  such  a  point  that  it  is  a  Qomplete  barrier  to 
navigation  (p.  370). 

Completion  of  Dam  No.  2  and  the  construction  of  Dam  No.  3  will  make  naviga- 
tion very  complete  (p.  392). 
Phosphate  rock. 

There  are  large  deposits  of  phosphate  rock  in  Tennessee  and  it  will  be  no  trouble 

to  reach  that  rock  from  the  Muscle  Shoals  plant  (p.  398). 
Plans  of  Mr.  Ford. 

Mr.  Ford  said  he  was  going  to  try  to  make  aluminum  and  possibly  some  of  its 

alloys  (p.  382). 
Power. 

Mr.  Ford's  unalterable  intention  and  objective  is  to  reduce  the  cost  of  power  to 

the  consumer  (p.  356). 

Completion' of  Dam  No.  2  and  construction  of  Dam-No.  3  will  add  about  750,000 
horsepower,  and  if  the  dams  on  the  upper  Tennessee  and  tributaries  should  be 
built,  it  is  a  rough  guess  to  say  that  there  is  a  million  horsepower  there  that 
could  be  developed  above  Chattanooga  (p.  392). 


DIGEST   OF   STATEMENTS   OX    MUSCLE   SHOALS.  15 

DIGEST  OF  STATEMENT  OF  MR.  HUGH  L.  COOPER,  CONSULTING  ENGINEER  (PP.  409- 

429.  638-639). 

Dams. 

It  will  take  three  years  to  complete  Dam  No.  2  and  the  same  time  to  construct 

Dam  No.  3.     Would  not  carry  on  these  operations  simultaneously  (p.  418). 
Disposition  of  Muscle  Shoals  proposition. 

Recommends  that  the  Government  should  finish  Dam  No.  2  itself;  could  then 
lease  the  power  on  the  basis  of  a  return  to  the  Government  of  5  per  cent  on  all 
money  invested  in  it  Cp.  417). 

Recommends  that  the  Government  complete  Dam  No.  3  in  the  absence  of  a  better 

proposition  than  Mr.  Ford's  (p.  426). 
Estimates. 

Expenditures  of  the  Ford  proposition  will  cost  the  United  States  Treasury 
*  1.275.000.000.  Total  cost  of  dams,  which  will  be  $83,175,475.  compounded 
annually  at  4  per  cent  for  the  lease  period,  would  produce  a  grand  total  of 
$3.304.095.000.  Investing  the  $2.000.000  Mr.  Ford  proposes  to  pay  into  the 
Treasury  annually  (4  per  cent  of  estimated  cost  to  complete  the  dams.  $50.000.- 
000).  it  would  return  to  the  Treasury  at  the  end  of  the  lease  period  $1.979.185.000, 
leaving  a  grand  total  deficit  of  $1.324.910.000.  Mr.  Ford's  amortization  pay- 
ments will  amount  to  $50.000.000,  leaving  a  net  deficit  of  $1.275.000,000  (pp. 
410.  411). 

If  the  4  per  cent  interest  charges  payable  by  the  Government,  referred  to  in 
preceding  paragraph,  are  figured  at*2  per  cent  payable  semiannually.  the  net 
total  deficit  the  Government  must  supply  by  general  taxation  because  of  the 
failure  of  Mr.  Ford's 'payments  to  foot  the  cost  to  the  Treasury  rjecomes  $1.485.- 
900.000  minus  $50.000.000  returned  to  Treasury  by  Mr.  Ford's  amortization 
fund,  or  a  net  deficit  of  $1.435.900.000.  (Letter  to  the  Committee  on  Military 
Affairs,  dated  February  21.  1922.  pp.  638-639.) 

Mr.  Ford's  engineers'  estimate  for  completion  of  Dams  Nos.  2  and  3,  $42,000,000, 
inaccurate;  it  will  be  more  than  $50,000,000,  instead  of  less  (p.  417). 

Mr.    Ford's  estimate  of  cost  of  flowage  rights,  $1,500,000,  is  inadequate;  will 

probably  be  double  that  amount  (p.  422). 
Financing  by  the  Government. 

Is  conservative  to  use  4  per  cent  in  calculating  the  cost  to  the  United  States 

Treasury  of  Mr.  Ford's  proposal  (p.  414). 
Flowage  rights. 

Mr.   Ford's  estimate  of  cost  of  flowage  rights,  $1,500,000,  is  inadequate;    will 

probably  be  double  that  amount  (p.  422). 
Leases,  length  of . 

<  'onsiders  100-year  lease  very  unreasonable;  maximum  time  should  be  50  years 

(pp.  417,418,  424). 
Power. 

Annual  production  of  power  from  the  two  dams  will  be  517.000  horsepower. 
8,000  hours  a  year,  which  is  the  amount  of  power  that  3,000,000  people  normally 
use  in  commercial  life.  This  power  will  save  5,000,000  tons  of  coal  a  year 
(p.  420). 

Mr.  Ford  a  annual  expenses,  or  operating  costs,  when  Dams  Nos.  2  and  3  are  fin- 
ished, would  be  $3,622,000.  Figuring  the  expenses  into  the  amount  of  power 
producible,  Mr.  Ford  would  get  his  24-hour  power  for  $10.80  a  horsepower  per 
annum,  which  is  about  half  the  current  price  of  this  class  of  power  (p.  420 K 

If  Mr.  Ford  would  pay  4  per  cent  on  total  cost  of  dams,  $83,000.000,  he  would 
still  get  the  power  at  20  per  cent  less  than  he  could  get  it  anywhere  on  American 
continent  (p.  421). 

There  should  be  a  limit  in  assigning  any  more  water  power  to  chemical  industries, 
proven  by  conditions  at  Niagara  Falls  (p.  423). 

It  would  be  a  tremendous  calamity  to  the  South  if  the  greatest  water  power  they 
have  should  be  taken  out  of  the  field  of  public  utility  for  100  years  (p.  424  (. 
Salvage  value  of  plants. 

Dam  No.  2  could  not  be  salvaged  at  any  value  (p.  416). 

DIGEST  OF  STATEMENT  OF  MR.   THEODORE  SWANX.   PRESIDENT,   FEDERAL  PHOS- 
PHORUS Co.  (PP.  431-442). 
Fertilizer. 

Mr.  Swann's  testimony  consists  chiefly  of  an  explanation  of  the  content  of 
fertilizer  and  a  description  of  his  efforts  to  perfect  a  cheap  and  efficient  method 
of  production.  The  component  parts  of  fertilizer  with  respect  to  plant  food 


16  DIGEST  OF  STATEMENTS  ON   MUSCLE  SHOALS. 

Fertilizer — Continued.  . 

are  ammonia,  phosphoric  acid,  and  potash,  averaging  3  per  cent  ammonia, 
9  per  cent  phosphoric  acid,  and  3  per  cent  potash.  His  method  is  the  phos- 
phoric acid  process,  which  can  be  used  wherever  cheap  power  is  available. 
By  this  process  the  manufacturer  can  produce  a  cheap  fertilizer  for  the  farmer, 
and  at  the  same  time  realize  a  legitimate  manufacturing  profit. 

DIGEST  OF  STATEMENT  OF  MR.  J.  0.  HAMMITT,  VICE  PRESIDENT,  AIR  NITRATES 
CORPORATION  (PP.  443-519). 

Air  Nitrates  Corporation. 

Is  a  subsidiary  of  the  American  Cyanamid  Co.,  and  has  a  purely  nominal  capi- 
talization of  $1,000,  all  of  which  is  owned  by  the  American  Cyanamid  Co. 
[p.  443). 

Obtained  from  the  Government  in  the  way  of  protection  merely  this:  That  if 
the  Government  ever  does  sell  nitrate  plant  No.  2,  it  gives  the  corporation 
the  first  chance  to  buy  it,  not  on  any  better  terms  than  it  is  willing  to  give 
to  somebody  else,  but  on  precisely  as  good  terms  (p.  446). 

Has  not  made  1  penny  of  profit  out  of  its  contract.  There  was  not  any  $2,000,000 
fee.  There  was  a  maximum  fee  of  $1,500,000  provided,  but  that  was  not 
money  that  the  American  Cyanamid  Co.,  or  the  Air  Nitrates  Corporation  was 
permitted  to  receive  and  keep.  One  hundred  million  dollars  worth  of  work 
was  done  for  the  Government  (p.  446). 

Has  not  been  paid  in  American  dollars  for  any  thing  it  gave  up,  and  what  it 
netted  on,  its  contract  is  a  loss,  and  it  is  somewhere  between  nothing  and 
$75,000  (p.  446). 

Mr.  Miller  states  that  if  Mr.  Ford  takes  over  nitrate  plant  No.  2  he  will  pay  Air 
Nitrates  Corporation  a  million  dollars  a  year  on  royalties  (p.  477). 

The  Air  Nitrates  Corporation  and  the  American  Cyanamid  Co.  have  no  connec- 
tion whatever  with  the  Alabama  Power  Co.  (pp.  448,  486). 

Ten  men  did  not  form  the  Air  Nitrates  Corporation,  but  it  was  formed  by  the 
American  Cyanamid  Co.  However,  the  services  of  10  men  were  delivered  to 
the  Government  without  charge  under  the  Air  Nitrates  Corporation's  contract. 
None  of  these  10  men  owns  a  dollar  of  stock  in  the  Air  Nitrates  Corporation 
(p.  495). 

Was  organized  under  the  laws  of  the  State  of  New  York  (p.  505). 

Has  worked  out  no  plan  by  which  there  is  in  prospect  a  definite  offer  *to  be  sub- 
mitted to  the  Government  (p.  506). 
American  Cyanamid  Co. 

Has  devoted  years  of  effort  and  millions  of  dollars  to  acquiring  patent  rights, 
developing  processes,  in  expensive  research  in  the  design  and  construction  of 
plants,  and  the  placing  of  those  plants  in  operation,  and  in  the  work  of  intro- 
ducing new  products  into  American  commerce;  and  when  the  war  came,  the 
only  company  in  this  country  that  was  engaged  in  fixing  nitrogen  on  a  com- 
mercial scale  was  the  American  Cyanamid  Co.  (p.  445). 

Has  succeeded  in  paying  6  per  cent  on  its  preferred  stock  with  the  exception  of 
its  last  two  quarterly  payments.  Has  never  paid  a  penny  of  dividends  on  its 
common  stock:  but  it  was  a  contribution  to  American  industry  and  there  was  a 
hope  that  the  money  that  had  been  invested  in  it  could  be  got  out  (p.  445). 

Total  assets  of  the  company  are  approximately  §16,800,000  (p.  465). 

Capital  stock  of  the  company  is  approximately  $12, 200,000  (p.  466). 

Mr.  James  B,  Duke  owns  between  23  and  24  per  cent  of  the  stock  of  the  company 
and  the  Virginia-Carolina  Chemical  Co.  owns  approximately  26  per  cent  of  the 
stock.  Mr.  Hammitt  thinks  that  there  is  no  other  individual  or  group  that 
possesses  as  much  as  10  per  cent  of  the  stock  (p.  467). 

Not  more  than  10  per  cent,  or  possibly  as  much  as  16  or  17  per  cent,  of  the  stock 
of  the  American  Cyanamid  Co.  is  owned  in  all  foreign  countries  (p.  505). 

Has  no  connection  with  the  Georgia  Railroad  &  Power  Co.,  the  Columbus  Power 
Co.,  the  Central  Georgia  Power  Co.,  or  the  Tennessee  Power  Co.  (p.  486). 

The  company  had  an  absolute  monopoly  of  the  manufacture  of  cyanamid  at  the 
time  the  construction  of  nitrate  plant  No.  2  was  contemplated  (p.  503). 

Operation  of  nitrate  plant  No.  2  by  Mr.  Ford  would  certainly  injure  the  American 
Cyanamid  Co.,,  very  materially  by  placing  upon  the  market  a  product  of  the 
cyanamid  process  (p.  506). 
Ammonium  nitrate. 

There  is  no  market  for  the  quantity  of  ammonium  nitrate  that  the  full  product 
of  nitrate  plant  No.  2  would  amount  to  (p.  456). 


DIGEST  OF  STATEMENTS  ON   MUSCLE  SHOALS.  17 

Ammonium  sulphate. 

Is  the  only  one  of  the  various  nitrogenous  fertilizer  materials  that  has  a  large 
enough  market  to  make  the  operation  of  nitrate  plant  Xo.  2  attractive,  and  the 
cost  of  producing  sulphate  of  ammonia  at  Muscle  Shoals  would  be  from  30  to 
50  per  cent  more  than  the  present  wholesale  market  price,  for  which  reason  the 
plant  can  not  be  operated  commercially  at  the  present  time  (p.  456).  ' 
Disposition  of  Muscle  Shoals  proposition. 

The  best  thing  the  Government  can  do  at  the  present  time  is  to  keep  nitrate  plant 
Xo.  2  in  stand-by  condition.  It  is  now  costing  $125.000  a  year,  and  is  self- 
sustaining  in  view  of  the  fact  that  a  part  of  the  plant  is  rentecl  to  the  Alabama 
Power  Co.,  for  a  minimum  of  §120,000  a  year,  plus  something  per  kilowatt 
hour  (p.  492).  , 
Fertilizer. 

Cyanamid  is  used  as  a  fertilizer  material  (p.  518). 

Fertilizer  or  fertilizer  compounds  can  not  be  manufactured  in  nitrate  plant 

Xo.  2  at  a  profit  (pp.  462-464). 
Hughes.  Charles  Evans. 

Was  employed  by  American  Cyanamid  Co.  for  the  purpose  of  advising  regarding 
the  form  of  protection  that  could  be  provided  for  the  company  against  the 
thing  it  was  creating  during  the  war  being  used  after  the  war  for  the  purpose  of 
destroying  it  (p.  451). 
Legal  questions  involved. 

The  acceptance  by  the  United  States  of  the  offer  of  Mr.  Ford  would  violate  the 
agreement  entered  into  with  the  Air  Nitrates  Corporation  under  date  of  June 
8,  1918  (p.  444). 
Text  of  article  19  of  contract  with  the  Air  Nitrates  Corporation  which  would  be 

violated  by  acceptance  of  the  offer  of  Mr.  Ford  (p.  444). 
As  to  the  matter  of  drafting  of  contract  of  the  Air  Nitrates  Corporation  Messrs. 

Sullivan  and  Cromwell  acted  as  attorneys  (pp.  488,  501). 
The  contract  of  November  16,  1917,  with  the  Air  Nitrates  Corporation  does  not 

now  exist  because  it  is  superseded  by  the  contract  of  June  8,  1918  (p.  510). 
Mr.  Hammitt  feels  that  a  moral  obligation  exists  relative  to  the  option  of  the 
Air  Xitrates  Corporation,  and  he  has  been  advised  and  believes  that  there 
exists  also  a  legal  obligation.     If  the  committee  does  not  recognize  any  moral 
obligation,  the  corporation  may  have  to  determine  the  legal  obligation  in  the 
courts,  and  that  is  a  thing  it  wants  absolutely  to  avoid  (p.  447). 
Nitrate  plant  No.  2  is  not  subject  to  the  provisions  of  the  national  defense  act. 
It  was  paid  for  out  of  appropriations  for  armaments  and  fortifications  (p.  448). 
Unless  section  124  of  the  national  defense  act  is  changed  the  Government  could 

not  possibly  accept  the  proposal  of  Mr.  Ford  (pp.  450,  454). 

Mr.  McKensie  states:  "If  the  contract  with  the  Air  Xitrates  Corporation  is  good 
under  existing  law,  then,  in  my  judgment,  the  law  itself  needs  amendment, 
because,  the  way  I  view  it,  a  contract  of  this  character  ought  to  be  void  on  the 
ground  of  public  policy"  (p.  453). 
Nitrate  plant  Xo.  2. 

Nitrate  plant  No.  2  could  not  be  operated  at  all  without  the  license  agreement 
for  use  of  the  patents  made  between  the  American  Cyanamid  Co    and  the 
I  nited  States  (p.  479). 
The  United  States  ha's  no  authority  to  grant  a  license  to  a  lessee  under  patents 

applicable  to  nitrate  plant  Xo.  2  (p.  503). 

Mr.  Hammitt  outlines  procedure  the  Government  might  follow  in  disposing  of 
nitrate  plant  Xo.  2  as  follows:  The  first  thing  the  United  States  must  do  must 
be  to  reach  a  decision  to  dispose  of  the  plant.  Having  reached  that  decision 
it  must  communicate  in  writing  to  the  Air  Xitrates  Corporation  the  fact  of  its 
determination  to  dispose  of  its  plant,  and  the  material  terms  upon  which  such 
disposition  will  be  made.  The  Air  Xitrates  Corporation  is  to  have  a  reasonable 
time,  not  exceeding  six  months,  to  consider  the  matter.  Mr.  Hammitt  thinks, 
that  the  reasonable  time  would  not  reach  six  months  (p.  491). 
AT  the  present  time  the  Air  Xitrates  Corporation  would  not  make  any  offer  for 
the  plant,  because  it  does  not  believe  it  is  practicable  to  have  a  commercial 
operation  of  that  plant  at  the  present  time,  unless  the  Government  will  make 
up  the  losses  by  providing  a  subsidy  (p  453) 
Patents. 

Principal  patents  of  the  Air  Xitrates  Corporation  expire  in  1932  fp  478) 
balvage  value  of  plants. 

The  salvage  value  of  nitrate  plant  Xo.  2  would  be  about  10  per  cent  of  the  amount 
ol  the  investment  in  it.  It  cost  about  §67,000.000.  making  the  salvage  estimate 
.^fi. 700, 000  (p.  506). 


18  DIGEST   OF   STATEMENTS  OX    MUSCLE   SHOALS. 

Subsidy. 

If  Mr.  Ford's  offer  is  accepted  Mr.  Hammitt  considers  that  Mr.  Ford  will  be 
receiving  a  subsidy.  He  states  that  Mr.  Ford  will  receive  very  cheap  water 
power  at  the  expense  of  the  United  States  Treasury,  because  Mr." Ford  proposes 
to  pay  a  very  much  smaller  interest  rate  to  the  United  States  upon  the  additional 
money  the  United  States  invests  in  the  water  power  than  he  would  be  required 
to  pay  if  he  were  compelled  to  finance  the  development  of  the  water  power  in 
the  usual  way.  In  addition,  Mr.  Ford  does  not  propose  to  pay  any  interest 
at  all  upon  the  amount  of  money  the  Government  already  has  invested  and  a 
considerable  part  of  the  amount  which  the  Government  will  have  to  addi- 
tionally invest  (p.  458). 

Mr.  Hull  states  that  in  his  opinion  the  acceptance  of  Mr.  Ford 's  offer  would  not 
involve  a  subsidy  (p.  458). 

DIGEST  OF  STATEMENT  OP  MR.  CHARLES    H.  MACDOWELL,  PRESIDENT  NATIONAL 
FERTILIZER  ASSOCIATION  (PP.  519-542). 

Disposition  of  Muscle  Shoals  propo  ition. 

Recommends  that,   from  the  preparedness  standpoint,  the  Government  keep 
nitrate  plant  No.  2.     The  Government  could  keep  it  on  an  economical-invest- 
ment basis,  and  hold  it  until  there  is  a  need  for  it  for  fertilizer  purposes  (pp. 
538-539). 
Fertilizer. 

Until  the  farmer  uses  materially  greater  quantities  of  nitrogen  in  the  forms  in 
which  it  would  be  made  at  Muscle  Shoals,  there  is  no  need  for  that  product  for 
agriculture  (p.  521). 

Cyanamid  process  will  be  obsolete  within  about  five  years.  The  Haber  and  Claude 
'processes  are  much  more  efficient  methods  of  producing  nitrogen  compounds 
(pp.  521-522). 

The  National  Fertilizer  Association  is  opposed  to  the  Government's  making  the 
Ford  contract,  though  they  are  in  favor  of  the  development  of  water  power  at 
Muscle  Shoals.  The  association  thinks  it  is  a  questionable  public  policy  to 
provide  facilities  and  over-facilities  at  a  water  power  for  one  man  to  monopolize 
for  100  years  (p.  523). 

Mr.  Ford  could  not  make  fertilizer  at  50  per  cent  less  than  it  is  being  made  to-day 
(p.  537). 

Germany  and  England  will  be  in  the  market  and  will  control  the  price  of  fertilizer, 
because  such  products  come  in  duty  free  (p.  538) 

DIGEST  OF  STATEMENT  OF  MR.  GRAY  SILVER,  WASHINGTON  REPRESENTATIVE  AMER- 
ICAN FARM  BUREAU  FEDERATION  (PP.  542-615). 

American  Farm  Bureau  Federation. 

The  actual  paid-up  membership  of  the  federation  in  the  latter  part  of  November 
was  about  1,000,000  (p.  577). 

More  than  1,500  and  upward  of  2,000  county  organizations  are  federated  into  46 
State  federations  which  are  federated  into' the  American  Farm  Bureau  Federa- 
tion, or  the  national  association  (p.  609). 
Capital  investment  of  Mr.  Ford's  company. 

•        In  discussion  with  Mr.  Ford  he  intimated  it  might  take  between  ten  and  fifteen 
million  dollars  to  make  nitrate  plant  No.  2  the  kind  of  production  plant  that 
he  desired  (p.  595). 
"Disposition  of  Muscle  Shoals  proposition. 

Ford  offer  indorsed  in  letter  from  American  Farm  Bureau  Federation  (pp.  41-42). 

At  the  annual  meeting  of  the  American  Farm  Bureau  Federation  in  Chicago  on 
March  4,  1920,  they  adopted  a  resolution  as  follows:  "We  support  the  measure 
pending  in  Congress  looking  toward  the  operation  of  the  nitrate  plant  No.  2  at 
Muscle  Shoals  for  the  production  of  nitrogen  fertilizer  compounds"  (p.  542). 

Ford  offer  indorsed  in  resolution  adopted  at  conference  of  those  engaged  in  agri- 
culture and  related  lines,  which  met  in  Washington  on  January  23  to  27,  1922, 
with  farmers  and  others  participating  (p.  543). 

Telegram  from  Alabama  Farm  Bureau  Federation  states  that  the  offer  of  the 
Alabama  Power  Co.  is  the  culmination  of  trick  methods  which  are  devoid  of 
business  ethics  (p.  574). 


DIGEST   OF   STATEMENTS   OX    MUSCLE   SHOALS.  19 

Fertilizer. 

Believes  that  if  Mr.  Ford  were  in  the  fertilizer  business  under  the  piovisions  of 
his  contract  the  farmers  would  get  much  cheaper  fertilizer  (p.  572). 

Mr.  Kearns  states  that  Mr.  Ford  has  not  agreed  in  his  offer  to  make  fertilizers. 

but  he  has  agreed  to  make  a  certain  component  part  of  the  fertilizer  (p.  592). 
Financing  by  the  Government. 

Letter  of  January  9.  1922,  from  Mr.  Silver  to  the  Secretary  of  War,  suggesting  the 
floating  of  a  Muscle  Shoals  bond  issue  of  $40.000.000  at  4  per  cent  (p.  569). 

If  the  Government  issues  4  per  cent  bonds  believes  that  there  would  be  no  hesita- 
tion on  the  part  of  the  farmers  of  the  country  to  subscribe  for  these  bonds  (p. 
574). 
Legal  questions  involved. 

In  regard  to  the  question  of  the  legal  "successors''  of  the  farmers'  representatives 
of  the  board  provided  for  in  section  15  of  Mr.  Ford's  offer.  Mr.  Silver  states  that 
if  the  question  arose  it  would  be  left  to  the  determination  of  the  President 
(p.  576). 

In  regard  to  the  question  of  Mr.  Ford's  liability  under  his  offer  to  produce  fertilizer 
Mr.  Silver  says.  "The  whole  of  sections  14  and  15  refer  to  the  producing  and 
supplying  of  the  farmers  with  fertilizers  at  reasonable  prices.  I  do 

not  think  any  mind  would  read  that  altogether  and  say  that  there  was  but  one 
purpose  that  could  rightfully  be  accomplished,  and  that  is  to  produce  and  supply 
fertilizer  for  agricultural  purposes  (pp.  590-591). 

Our  people  are  inclined  to  take  the  opinion  of  the  Government  officials  and  of  the 
Judge  Advocate  General  to  the  effect  that  the  claim  of  the  Air  Nitrates  Cor- 
poration is  not  a  valid  obligation  and  that  they  have  no  claim  (p.  596). 
Phantom  freights. 

Phantom  freights  are  freights  that  are  paid  under  the  Pittsburgh  plus  agreement 

on  goods  never  shipped  (p.  567). 
Subsidy. 

It  has  been  stated  that,  if  Mr.  Ford  is  allowed  to  have  an  opportunity  to  develop 
these  plants  at  Muscle  Shoa's.  he  will  be  receiving  a  subsidy.  Mr.  Ford  is  not 
asking  for  a  subsidy  and  the  farmers  are  not  asking  for  a  subsidy  (p.  573). 

Mr.  Fields  states  that  instead  of  the  Government  extending  a  subsidy  in  this  case. 
it  is  ma'dng  a  trade  with  Mr.  Ford  which  is  the  most  favorable  trade  the  Govern- 
ment has  ever  made  with  an  individual  in  the  United  States  (p.  608). 

DIGEST  OF  STATEMENT  OF  MR.  R.  F.  BOWER,  ASSISTANT  IN  WASHINGTON  OFFICE  OF 
THE  AMERICAN   FARM  BUREAU  FEDERATION  (PP.  615-638). 

Disposition  of  Muscle  Shoals  proposition. 

Army  engineers  have  testified  that  depreciation  of  nitrate  plant  No.  2  is 
$2,'oOO,000,  and  cost  of  maintenance  $200,000  a  year,  which  is  $2,700,000  of 
expense  to  the  Government  which  Mr.  Ford  assumes,  and  in  two  years  he  will 
pay  more  than  the  Government  would  receive  from  the  Alabama  Power  Co.  in 
cash  (p.  631). 
Fertilizer. 

The  American  Farm  Bureau  Federation  submits  that  if  the  Government  will 
complete  this  water  power,  and  allow  Mr.  Ford  to  have  it,  farmers  will  get 
fertilizer  at  one-half  the  price  they  would  otherwise  pay  for  it  (p.  623). 

Mr.  Ford's  proposition  will  be  of  lasting  benefit  to  agriculturalists  of  the  country 

(p.  631). 
Subsidy. 

The  American  Cyanamid  Co.  which  denounces  the  Ford  proposal  as  a  subsidy 
at  4  per  cent  interest  was  before  this  committee  (Committee  on  Military  Af- 
fairs) in  1916  asking  for  the  identical  thing  at  3  per  cent,  and  called  it  "proper 
Government  cooperation''  (p.  623). 

Those  opposing  Ford  proposal  say  the  85,000,000  is  a  subsidy.  If  nitrate  plant 
Xo.  2  can  not  be  operated  at  a  profit  then  no  subsidy  is  involved  in  selling 
plants  to  Mr.  Ford  for  $5,000,000  (p.  632). 

DIGEST  OF" STATEMENT  OF  HON.  S.  HUBERT  DENT,  JR.,  ATTORNEY  FOR  THE  ALABAMA 
POWER  Co.  (PP.  640.  742-704,  816-833). 

Alabama  Power  Co. 

The  question  has  been  raised  as  to  whether  or  not  the  Alabama  Power  Co.  had 
anything  to  do  with  the  passage  of  the  act  authorizing  the  heads  of  the  various 
departments  to  sell  property  of  the  Government  that  was  acquired  during  the 
war.  That  provision  of  law  is  a  rider  on  the  Army  appropriation  bill  of  July  9, 
1918.  The  legislation  was  requested  by  the  Secretary  of  \Var  (p.  74(5;. 


20  DIGEST  OF  STATEMENTS  ON   MUSCLE  SHOALS. 

Alabama  Power  Co.,  contract  with. 

Arbitrators  are  not  bound  by  the  strict  rules  of  law  in  fixing  the  price  of  property. 
Mr.  Dent  thinks  that,  in  this  case,  they  would  ta~ke  into  consideration  the 
original  amount  that. the  Government  put  into  the  plant,  that  they  would  con- 
sider how  much  it  would  cost  to  reproduce  it,  that  they  would  consider  the 
earning  capacity  of  the  plant  as  it  is,  and  the  wear  and  tear  and  the  use  of  the 
property  for  the  time  that  it  has  been  used.  All  of  those  things  being  taken 
into  consideration,  the  arbitrators  could  reach  a  fair  conclusion  as  to  what  the 
Alabama  Power  Co.  would  have  to  pay  for  this  property,  and  under  the  con- 
tract they  would  have  to  pay  that  price.  Mr.  Dent  thinks  that  this  contract 
with  the  Alabama  Power  Co.  is  one  of  the  fairest  contracts  that  were  made  in 
the  stress  of  war,  of  that  class  (p.  744). 

It  was  not  unusual  for  the  Government  to  make  contracts  of  this  kind  (p.  744). 

Whenever  arbitration  contracts  are  made,  each  party  names  his  own  arbitrator, 
and  if  they  can  not  agree  the  two  select  a  third.  The  arbitration  provision  in 
the  contract  with  the  Alabama  Power  Co.  goes  farther  and  states  that  if  the  two 
arbitrators,  selected  on  the  one  hand  by  the  power  company  and  on  the  other 
by  the  Government,  can  not  agree  upon  the  third  man,  then  the  presiding 
judge  of  the  Court  of  Appeals  of  the  Fifth  Circuit  of  the  United  States  shall 
select  the  third  man.  Nothing  could  be  fairer  than  that  in  providing  the 
means  of  fixing  the  fair  price  that  the  Alabama  Power  Co.  should  pay  for  this 
property  (p.  827-. 
Bond. 

Mr.  Martin  states  that  the  bond  given  by  the  Alabama  Power  Co.  was  executed 
after  the  execution  of  the  contract  on  the  7th  of  November.  The  Government 
had  a  disbursing  officer  on  the  work,  and  the  Government  disbursing  officer 
took  care  of  practically  all  the  disbursements.  There  were  some  disbursements 
which  the  company  took  care  of  in  completing  the  work.  The  bond  was 
actually  tiiven  between  the  execution  of  the  contract  and  December  I,  19] 8 
(p.  762).  J 
Dent,  S.  Hubert,  jr. 

Mr.  Dent  represents  the  Alabama  Power  Co.  as  an  attorney  with  reference  simply 
to  their  legal  rights  in  connection  with  this  proposition,     lie  does  not  represent 
the  company  or  anybody  else  with  reference  to  any  policy  that  the  committee 
may  see  lit  to  adopt  (p.  640\ 
Estimates*. 

If  the  Gorgas  plant  is  left  in  Mr.  Ford's  proposition,  the  Government  is  giving  to 
Mr.  Ford  nine  or  ten  million  dollars,  tree  gratis,  for  absolutely  nothing,  con- 
sisting oi  the  $5,000,000  that  they  ha\e  already  expended  and   something 
like  £l,000,000  that  the  Alabama  Power  Co.  has  put  into  this  property  (p.  748). 
Gorgas- Warrior  steam  plant. 

Mr.  Dent  contends  that  the  reserve  steam  plant  of  the  Alabama  Power  CQ.,  situ- 
ated out  in  the  coal  fields  of  Walker  County,  88  miles  from  Muscle  Shoals,  can 
not  of  necessity  be  essential  to  the  development  of  the  Muscle  Shoals  project 
(p.  7fi2). 

Mr.  Dent  can  not  see  the  essential  necessity  oi  having  to  use  the  Gorgas  plant  to 
operate  the  nitrate  plant  at  Muscle  Shoals,  which  ultimately  is  to  be  operated, 
if  operated  at  all,  by  water  poxver  (pp.  750- -7 57). 
Legal  questions  involved. 

It  has  been  charged  that  the  contract  with  the  Alabama  Power  Co,  is  a  hard 
and  unconscionable  bargain.  If  it  is  a  hard  bargain,  it  appears  on  the  face 
of  the  instrument  itself.  Mr.  Dent  knows  of  no  rule,  even  in  a  court  of  equity, 
which  will  relieve  against  a  contract  because  one  party  gets  an  unfair  advantage 
over  the  other  if  that  advantage  appears  on  the  face  of  the  contract  itself  and 
the  contract  was  executed  by  parties  competent  to  contract  (p.  741). 

The  main  reason  for  the  opinion  that  the  contract  with  the  Alabama  Power  Co. 
is  a  hard  bargain  seems  to  be  because  the  only  party  that  can  purchase  the 
Government's  interest  in  the  contract  is  the  Alabama  Power  Co.  Mr.  Dent 
asks  if  the  law  books  are  not  full  of  cases  where  the  owner  of  land  has  entered 
into  a  contract  with  a  third  party  to  put  improvements  on  his  land  and  to  use 
those  improvements  for  a  stipulated  period. of  time,  and  at  the  end  of  that 
time  the  owner  to  pay  for  them  at  such  a  price  as  may  be  agreed  upon  between 
them  or,  if  not,  at  such  price  as  may  be  be  fixed  by  arbitration  (p.  744  X 

Wherever  parties  enter  into  a  contract  involving  the  sale  and  purchase  of  property 
it  is  an  ordinary  feature  of  such  a  contract  that  if  they  can  not  agree  upon  the 
terms  that  they  shall  be  fixed  by  arbitration.  The  right  to  fix  the  price  by  ar- 
bitration necessarily  follows  the  absolute  power  to  sell  the  property  (p.  827). 


DIGEST   OF   STATEMENTS  ON   MUSCLE   SHOALS.  21 

Legal  questions  involved — Continued. 

Section  124  of  the  national  defense  act  has  no  application  to  the  contract  with  the 
Alabama  Power  Co.  (p.  747). 

Mr.  Dent  considers  that  the  Dent  Act  recently  passed  by  Congress  is  an  expression 
of  the  congressional  will  that  the  Government  of  the  United  States,  even  if  it 
had  the  opportunity  to  take  advantage  of  the  Alabama  Power  Co.  in  this  case, 
because  of  the  fact  that  perhaps  the  contract  may  be  in  violation  of  section  124 
of  the  national  defense  act.  that  under  no  circumstances  ought  the  Govern- 
ment, in  this  instance,  to  set  such  an  example  to  the  American  people  (p.  750). 

One  of  the  well-established  exceptions  to  the  rule  that  parole  evidence  can  not  be 
introduced  to  vary  a  written  instrument  is  that  you  can  always  prove  the  true 
date  of  the  instrument.  The  undisputed  proof  iri  this  case  shows  that  this  con- 
tract was  not  actually  executed  until  November,  1918,  some  months  after  the 
passage  of  the  act  of  July  9,  1918,  authorizing  the  heads  of  the  various  depart- 
ments to  sell  property  of  the  Government  that  was  acquired  during  the  war 
(p.  746). 

The  parties  to  a  contract  can  adopt  any  date  they  want  to  when  they  sign  a  contract 
provided  it  is  not  signed  on  a  Sunday  or  some  day  that  is  illegal .  They  can  adopt 
any  date  they  want  to:  but  when  it  comes  to  the  proof  of  the  actual  date  of  exe- 
cution the  law  always  permits  the  proof  to  be  established  by  parole  evidence 
(p.  758). 

In  answer  to  the  question,  if  the  minds  of  these  parties  came  together  in  Decem- 
ber, 1917,  upon  the  terms  of  the  contract,  whether  or  not  the  law  then  in 
existence  would  not  govern  rather  than  the  law  in  existence  at  the  time  of 
the  actual  execution  of  the  written  instrument,  Mr.  Dent  states  that  the  well- 
established  rule  is  that  where  parties  enter  into  negotiations  and  they  are 
pending  for  a  long  time,  with  verbal  negotiations  and  written  memoranda, 
etc.,  that  all  previous  negotiations  are  merged  finally  into  the  execution  of  the 
written  instrument  (p.  751). 

A  contract  must  be  signed  and  delivered  before  it  has  any  vitality  (p.  758). 

The  contention  of  the  Alabama  Power  Co.  is  that  its  contract  is  really  fairer  than 
most  of  the  contracts  that  were  made  during  this  time,  that  it  is 'in  line  with 
the  policy  adopted  by  the  Government  during  the  war  in  making  such  contracts, 
that  it  is  in  accordance  with  the  general  law  on  the  subject,  that  the  date  of 
the  contract  shows  that  it  was  executed  after  Congress  had  authorized  such  a 
contract  to  be  executed,  that  it  is  not  in  violation  of  section  124  of  the  national 
defense  act,  and  that  it  is  not  a  joint  undertaking  on  the  part  of  the  Alabama 
Power  Co.  ''We  contend  that  even  if  you  have  the  right  to  take  a  technical 


advantage  of  the  Alabama  Power  Co.,  the  Government  of  the  United  States  is 
too  big  and  Congress  is  too  honest  to  justify  any  such  legislation"  (p.  750). 


party  should  be  given  fair  and  just  consideration.  The  company 
claims  that  if  the  Government  should  enter  into  a  contract  with  Mr.  Ford  in 
accordance  with  his  proposition,  in  order  to  carry-  it  out,  the  Government  must 
condemn  the  company's  contractual  rights  with  it,  as  well  as  the  land  and 
the  plant  which  confessedly  the  company  owns  in  fee  simple.  In  order  to 
do  that  the  Government  must  surrender  about  $5.000.000  that  it  has  put 
into  that  plant,  and  in  addition  to  that  the  Government  would  be  required 
to  pay  to  the  company  whatever  the  courts  would  say  its  property  rights 
were,  amounting  at  least  to  some  three  or  four  million  dollars  (p.  748). 

The  right  on  the  part  of  the  Government  to  condemn  is  limited  to  property  that 
is  essential  in  order  to  carry  out  the  fundamental  Government  purpose.  If  it 
can  be  shown  that  the  Gorgas  plant  is  not  necessary  in  order  to  effectuate  the 
public  purpose  of  developing  Muscle  Shoals  so  that  we  can  make  nitrogen  from 
the  air.  then  Mr.  Dent  questions  whether  any  court  will  take  the  property  of 
the  Alabama  Power  Co.  and  give  it  to  Mr.  Ford  under  a  condemnation  pro- 
ceeding. "At  any  rate,  if  you  make  this  contract,  nobody  could  blame  the 
Alabama  Power  Co..  as  the  owner  of  this  property,  from  [for]  asserting  its  rights 
in  the  courts,  and  acceptance  of  the  contract  in  its  present  form  would  mean  a 
lawsuit "  (p.  748). 

If  Congress  should  accept  Mr.  Ford's  offer,  Congress  would  have  to  provide  some 
means  and  method  of  taking  the  property  of  the  Alabama  Power  Co.  away 
from  the  company  and  turning  it  over  to  Mr.  Ford.  Mr.  Dent  does  not  know 
of  any  way  that  can  be  done  except  by  an  act  of  condemnation  of  that  property 
declaring  that  it  is  necessary  for  this  particular  public  use.  and  in  that  con- 
demnation proceeding  the  company  would  be  the  defendant,  and  would  assert 


22  DIGEST   OF   STATEMENTS   OX    MUSCLE   SHOALS. 

Legal  questions  involved— Continued. 

its  rights  under  its  contract,  and  would  deny  that  this  property  was  necessary 
for  Mr.  Ford's  purpose  at  Muscle  Shoals  as  a  public  use  (p.  822;. 

Mr.  Dent  contends  that  even  if  Congress  should  pass  a  law  asserting  that  it  is 
necessary  to  have  the  Warrior  plant  to  successfully  carry  on  the  work  at  Muscle 
Shoals,  that  that  act  could  be  contested  in  the  courts  and  tried  out  as  a  question 
of  law,  based  on  the  facts  of  whether  or  not  it  was  necessary  for  carrying  out 
the  Government's  intention  (p.  821). 

Mr.  Dent  thinks  that  the  language  of  the  contract  by  which  the  Alabama  Power 
Co.  had  the  right  at  any  time  to  purchase  the  Gorgas- Warrior  steam  plant  from 
the  Government  shows  that  the  company  did  not  admit  that  the  project  at 
Gorgas  was  necessary  for  the  earning  on  of  the  project  at  Muscle  Shcals  (p.  823). 

As  Mr.  Dent  construes  the  Dent  Act,  it  is  permanent  law.  The  time  proviso  in 
it  is  a  proviso  to  the  effect  that  this  act  shall  not  authorize  payment  to  be  made 
of  any  claim  not  presented  before  June  30,  1919:  but  that  only  applies  to  cases 
where  the  other  party  to  the  contract  has  a'  money  demand  against  the  Gov- 
ernment. The  Alabama  Power  Co.  has  no  money  demand  against  the  Gov- 
ernment in  this  case,  but  is  simply  asking  that  its  contract  be  fulfilled  (p.  749). 

Mr.  Dent  thinks  that  the  language  of  the  act  of  May  10,  1918,  authorizing  the  sale 
of  any  property  that  has  been  acquired  or  that  may  hereafter  be  acquired  aiid 
that  was  used  in  connection  with  the  prosecution  of  the  war,  is  broad  enough 
to  cover  the  question  of  the  authority  for  the  sale  of  the  Gorgas- Warrior  steam 
plant  (p.  751). 

Mr.  Dent  understands  the  term  "the  head  of  any  executive  department''  to 
include  the  chiefs  of  bureaus  (p.  752). 

It  is  Mr.  Dent's  contention  that  one  of  the  heads  of  departments,  such  as  a  Cabi- 
net officer,  would  have  the  power  under  the  law  [act  of  July  9,  1918]  to  redele- 
gate  authority  delegated  to  him  by  Congress  (p.  817). 

The  act  of  July  9.  1918.  does  not  say  that  the  contracts  must  be  signed  by  the 
heads  of  the  depaitments,  but  says  that  these  contracts  must  be  made  through 
the  heads  of  the  various  departments,  and  that  language  was  used  intentionally, 
because  it  would  have  been  a  physical  impossibility  for  the  Secretary  of  War 
alone  to  sign  all  the  millions  of  dollars'  worth  of  contracts  that  the  War  Depait- 
ment  made  during  the  war  (p.  825). 

The  language  of  the  proviso  of  the  act  of  July  9,  1918,  reads  this  way:  That  a 
detailed  report  shall  be  made  to  Congress  on  the  first  day  of  each  regular  session 
of  the  sale  of  such  war  supplies,  ft  was  not  limited  to  the  next  regular  session. 
Mr.  Oliver,  in  making  his  statement,  apparently  overlooked  the  word  "each"' 
in  that  proviso  (p.  832). 

Mr.  Dent  thinks  that  the  property  that  the  Government  and  the  Alabama  Power 
Co.  owned  together  and  operate  together  is  part  of  the  realty,  and  that  the 
realty  is  vested  in  the  Alabama  Power  Co.  (p.  755). 

Mr.  Dent  believes  that  the  Government  ought  not  to  enter  into  a  contract  with 
Mr.  Ford  in  accordance  with  the  proposition  as  it  is  now  pending,  which  includes 
the  farming  out,  so  to  speak;,  of  the  property  of  the  Alabama  Power  Co.  to  Mr. 
Ford;  that  is,  the  steam  plant  at  Gorgas  and  the  transmission  line  (p.  758). 

At  any  time  under  the  contract  the  Alabama  Power  Co.,  after  the  construction  of 
this  additional  equipment  and  this  transmission  line,  could  have  demanded  of 
the  Government,  if  they  were  ready  to  pay  for  it,  that  the  property  be  sold  to 
them  upon  the  payment  of  the  value,  the  Government  reserving  the  right  to 
demand  of  the  power  company  that  the}*  continue  to  supj'ly  power,  pending 
the  construction  of  this  plant  at  Muscle  bhoals  (p.  760). 

Under  the  terms  of  the  contract  with  the  Alabama  Power  Co.  the  Government 
had  the  right  to  demand  that  the  Alabama  Power  Co.  purchase  this  property, 
on  the  one  hand,  and  the  Alabama  Power  Co.  had  the  right  to  demand  of  the 
Government  that  it  sell  the  property.  Mr.  Dent  does  not  see  any  reason  why 
an  agent,  having  authority  to  sell,  "can  not  go  ahead  and  select' the  party  to 
purchase  the  property  including  that  party  in  the  agreement,  at  a  speciued  time 
and  stating  that  that  party  shall  buy  the  property,  lie  does  not  think  that  the 
time  limit  has  any  effect  upon  the  authority  of  the  agent  (p.  829). 

It  is  an  absolute  right  on  the  part  of  the  Government  to  demand  that  the  Alabama 
Power  Co.  purchase  this  property;  on  the  other  hand,  the  Alabama  Power  Co., 
as  the  other  contractor,  has  the  absolute  right  to  demand  of  the  Government  that 
it  sell.  There  is  no  option  in  that  (p.  829). 

Mr.  Dent  thinks  if  the  Government  demands  under  the  contract  within  the  time 
limit  that  the  Alabama  Power  Co.  purchase  the  property,  and  the  Alabama 
Power  Co.  refuses  to  do  it,  the  Alabama  Power  Co.  has  broken  the  contract 
and  would  be  liable  for  a  breach  of  contract  (p.  831). 


.  DIGEST   OF   STATEMENTS  OX   MUSCLE  SHOALS.  23 

Legal  questions  involved — Continued. 

Mr.  Dent  thinks  that  from  the  legal  point  of  view  there  would  not  be  any  differ- 
ence between  the  sale  of  the  property  and  the  optioning  of  property.  In  law 
the  ri^ht  to  make  a  sale  carries  with  it  the  ris;ht  to  make  a  contract  for  sale 
(p.  761). 

The  contention  of  some  of  the  members  of  the  committee  and  others  is  that  the 
contract  with  the  Alabama  Power  Co.  is  invalid,  but  conceding  the  validity 
of  the  contract,  the  company  has  reserved  all  its  rights  in  the  property,  and  has 
been  in  possession  of  the  property  all  along. .  The  Government  could  not  get 
possession  of  that  property  now.  It  could  not  sue  in  ejectment  for  it  because 
it  has  no  title.  The  only' way  the  Government  would  get  it  would  be  for  Con- 
gress to  pass  a  condemnation  act.  and  then  for  the  Government  to  proceed  in 
the  Federal  courts  to  institute  condemnation  proceedings,  and  in  that  case  the 
company  would  assert  its  rights  to  the  property  (pp.  821-822). 

The  law  of  the  place  where  the  land  lies  is  the  law  that  governs  this  contract. 
Mr.  Dent  has  not  the  slightest  doubt,  under  the  law  of  Alabama,  that  if  this 
contract  is  held  invalid,  then  the  Government  has  put  property  on  the  land  of 
the  Alabama  Power  Co.  and  the  property  belongs  to  the  company,  and  the 
Government  has  lost  the  money  it  has  put  in  there  (p.  822). 

Mr.  Dent.  '•*  *  I  said  that'if  the  contract  between  the  Alabama  Power  Co. 
and  the  Government  is  declared  invalid  and  void,  of  no  effect  whatever,  then 
the  Government  is  in  the  attitude  of  having  gone  involuntarily  and  without  our 
consent,  and  put  improvements  on  our  land,  and,  under  the'laws  of  Alabama, 
if  I  put  improvements  on  your  property  without  any  contract  with  you  as  the 
owner  you  get  the  benefit  of  my  work  and  my  improvements,  and  they  belong 
to  you." 
******* 

Mr.  STOLL.  "It  must  have  been  by  permissive  use.     Did  the  Alabama  Power  Co. 

try  to  enjoin  anybody  from  going  on  there  or  to  stop  them?  " 
Mr.  DENT.  ''Not  at  all,  and  we  are  not  claiming  that." 
******* 

Mr.  DENT.  ''I  was  simply  suggesting  what  might  result  if  this  committee  and 
Congress  should  hold  that  this  contract  was  absolutely  void  and  had  no  force 
and  effect  whatever.  In  my  opinion  the  natural  consequence  of  that  would 
be  to  give  to  the  Alabama  Power  Co.  all  the  improvements  which  the  Govern- 
ment had  put  on  that  land"  (pp.  822-823). 

There  is  nothing  in  the  contract  of  the  Alabama  Power  Co.  that  raises  any  estoppel 
against  the  company  (p.  824). 

The  power  to  sell  carries  with  it  the  lesser  power  to  make  a  contract  for  a  sale.  It 
necessarily  carries  with  it  the  power  to  fix  the  terms  of  the  sale.  It  necessarily 
carries  with  it  the  time  when  the  sale  shall  take  place  (p.  826). 

Mr.  Dent  thinks  that  if  the  contract  between  the  Alabama  Power  Co.  and  the 
Government  is  a  valid  contract,  then  the  property  placed  on  the  land  of  the  com- 
pany by  the  Government  is  in  the  nature  of  personal  property.  He  considers 
that  the  laws  of  May  and  July,  1918,  covering  the  sale  of  personal  property 
belonging  to  the  Government  are  applicable  to  this  property  (p.  826). 

Mr.  Oliver  has  asserted  that  the  Muscle  Shoals  property  was  not  property  that  was 
acquired  for  the  emergency,  but  it  was  property  that  was  acquired  for  perma- 
nent use.  Mr.  Dent  thinks  that  the  facts  will  not  bear  out  this  statement, 
because  the  President  located  this  plant  there  as  a  waMime  measure  (p.  831). 

DIGEST  OF  STATEMENT  OF  MR.  THOMAS  W.  MARTIN,  PRESIDENT  ALABAMA  POWER 
Co.  (PP.  640-702,  706-741,  762.  774-816,  S37-8S5.  946.  1027-1038). 

Advantages  to  the  Government. 

The  advantages  to  the  Government  under  the  proposal  of  the  Alabama  Power 
Co.  are  summarized  by  the  Secretary  of  War  in  his  letter  transmitting  the 
report  to  Congress  (pp.  774-776). 

Under  the  proposal  of  the  Alabama  Power  Co.  the  Government  will  be  in  a  posi- 
tion to  turn  over  the  two  nitrate  plants,  with  power  and  money,  for  the  opera- 
tion thereof,  to  anyone  capable  of  meeting  the  requirements  *of  the  Govern- 
ment and  the  farmers  for  nitrates  and  fertilizers,  or  the  Government  may 
retain  the  properties  and  itself  cany  on  experiments  and  manufactures. 
(Letter  from  company,  p.  7.78.) 

Under  the  proposal  of  the  Alabama  Power  Co.  pro vision-is  made  that  in  case  the 
use  of  100,000  horsepower  is  discontinued  by  the  Government  the  company 


24  DIGEST   OF   STATEMENTS   ON    MUSCLE   SHOALS.  - 

Advantages  to  the  Government — Continued. 

will  purchase  that  power  from  the  Government  and  the  proceeds  will  then  be 
available  for  any  use  desired  by  the  Government,  including  the  amortization 
of  its  present  investment  in  the  situation.  (Letter  from  company,  p.  778.) 

Under  the  proposal  of  the  Alabama  Power  Co.  the  Government  need  not  appro- 
priate any  money.  Under  another  offer  the  Government  will  dispose  of  the 
two  nitrate  plants,  including  the  steam  plant  and  equipment,  for  $5,000,000. 
It  has  been  stated  that  the  two  nitrate  plants  represent  about  $75,000,000  of 
Government  investment  that  the  Government  retains  under  the  proposition 
of  this  company.  In  addition,  the  company  has  the  Government's  investment 
of  $17,000,000  made  in  the  incomplete  Wilson  Dam.  No  one  has  suggested 
that  the  Government  get  any  return  upon  that  $17,000,000  except  by  way  of 
an  annual  amortization  fund.  This  company  proposes  to  give  the  Government 
100,000  horsepower,  plus  $5,000,000  for  the  work  that  has  been  done  at  the 
Wilson  Dam  and  the  steam  plant  and  equipment,  and  to  finance  the  Wilson 
Dam  to  its  completion.  The  obligation  to  finance  this  property  to  its  comple- 
tion, the  obligation  to  pay  $5,000,000,  the  obligation  to  deliver  the  Government 
100,000  horsepower,  and  the  maintenance  of  the  dams  and  gates  throughout 
the  50-year  lease  period  are  included  in  the  offer  of  the  company.  The  obli- 
gation of  the  company  runs  for  50  years;  under  another  proposal  the  obligations 
of  the  Government  and  of  the  licensee  or  purchaser  would  run  for  100  years. 
There  is  also  the  great  question  of  the  right  of  recapture  at  the  end  of  50  years 
on  the  payment  of  the  net  investment  (pp.  812-813). 
Alabama  Power  Co. 

Mr.  Martin  has  been  president  of  the  company  since  February,  1920.  Prior  to 
that  time  he  was  vice  president  and  general  counsel,  and  had  been  connected 
with  the  company  as  its  counsel  and  as  a  director  since  1912  (p.  640). 

Alabama  Power  Co.  was  organized  under  the  laws  of  Alabama  in  1906  by  citizens 
of  that  State.  Company  remained  a  nonoperating  company  for  six  years. 
After  1912  millions  of  dollars  were  found  abroad  principally  for  the  project  of  the 
company  on  the  Coosa  River.  In  August,  1914,  about  65  or  70  per  cent  of  the 
company's  securities  were  held  abroad.  Since  that  time  the  company  has  been 
entirely  financed  in  America  to  the  extent  of  about  $23,000,000.  Now  about 
35  or  40  per  cent  of  its  securities  are  held  abroad  (p.  641-642). 

Investment  and  expenses  of  the  company  in'  connection  with  Gorgas- Warrior 
station  amounted  to  $1,016,515.61  (p.  650). 

The  company  received  $285,000  as  a  fee  for  constructing  the  Gorgas- Warrior  plant, 
basis  a  cost-plus  contract  (p.  663). 

In  1918  the  company  conveyed  to  the  Government  for  $1  the  site  at  which  Dam  No. 
2  is  being  erected.  The  company  owned  this  land  in  fee  simple,  and  had  ex- 
pended more  than  $500,000  on  its  development  (pp.  669-671,  698,  699). 

During  the  year  1921  the  company  paid  the  Government  $77,211.61  for  power 
from  Gorgas- Warrior  steam  plant  (p.  683). 

The  payment  of  $60,000  to  the  company  by  the  United  States  provided  for  by 
article  12  of  the  contract  T-69  was  received  November  27,  1918.  The  con- 
tractor's fee,  provided  for  in  article  13  of  said  contract,  was  received  as  follows: 
November  27,  1918,  $100,000;  April  18,  1919,  $75,000;  May  26,  1919,  $50,000  (p. 
708). 

Company  is  an  Alabama  corporation  with  headquarters  in  Birmingham.  Com- 
pany has  been  authorized  to  transact  business  in  the  State  of  New  York  (p.  724). 

The  Alabama  Traction,  Light  &  Power  Co.,  domiciled  in  the  Dominion  of  Canada 
is  the  holding  company  for  the  Alabama  Power  Co.  and  owns  its  common  stock. 
The  stockholdings  of  this  Canadian  company  are  largely  held  in  America  now. 
The  preferred  stock  of  the  Alabama  Power  Co.  is  all  held  in  Alabama.  The 
common  stock  is  the  majority  of  all  the  stock,  common  and  preferred.  The  poli- 
cies of  the  company  are  fixed  by  the  board  of  directors,  the  majority  of  whom 
live  in  Alabama  (pp.  726-727,  738-739,  740-741,  851-852,  880-861). 

The  company  has  more  than  17,000  customers  and  serves  more  than  50  munici- 
palities. It  has  more  than  1,500  miles  of  transmission  lines,  an  installed  electric- 
generating  capacity  of  175,000  horsepower,  and  is  engaged  in  constructing  a  new 
hydroelectric  plant  on  the  Coosa  River  of  110,000  horsepower  capacity  under 
a  50-year  license  granted  by  the  Federal  Power  Commission  (p.  777). 

Mr.  Martin  does  not  see  how  there  can  be  anything  in  excess  of  a  fair  return, 
because  the  Government  or  public  authorities  regulate  the  rates  on  the  one 
hand  and  the  Government  will  take  by  exappropriation  annually  anything 
over  a  fair  return  under  the  present  rules  and  regulations  of  the  Federal  Water 
Power  Commission  (p.  813). 


DIGEST  OF   STATEMENTS  ON   MUSCLE   SHOALS.  25 

Alabama  Power  Co. — Continued. 

The  company  has  a  fixed  position  by  which  it  can  go  out  and  sell  its  securities  to 
most  of  the  public  and  can  finance  its  proposals.  In  1921  it  sold  approximately 
$10.000.000  worth  of  securities  (pp.  857-858,  859). 

The  company  has  no  options  for  any  power  outside  of  Alabama.  It  has  developed 
two  water  powers  in  Alabama  and  a  third  is  in  process  of  development.  If  the 
company  gets  control  of  Muscle  Shoals.  Mr.  Martin  considers  that  this  will  not 
mean  that  the  company  would  have  a  monopoly  (pp.  869-870). 

A  statement  was  presented  by  Mr.  Martin  in  answer  to  statements  made  before 
the  Military  Affairs  Committee  of  the  House  of  Representatives  on  March  8. 1922 
(pp.  1027-1038). 

It  has  been  charged  against  the  company  that  it  owns  and  controls  a  number  of 
power  sites  on  several  rivers  in  Alabama  and  that  in  14  years  since  its  incorpora- 
tion it  has  built  but  one  power  dam  and  commenced  work  on  another,  and  that 
it  has  been  the  policy  of  the  company  to  develop  only  such  power  as  could  be 
sold  in  small  units  and  at  high  prices.  Mr.  Martin  affirms  that  this  statement 
is  both  misleading  and  untrue  (p.  1027). 

Although  the  Alabama  Power  Co.  has  been  able  to  make  but  one  power  develop- 
ment in  Alabama,  there  being  no  Federal  legislation  until  1920,  the  company 
has  extended  its  lines  in  various  parts  of  the  State,  and  with  the  aid  of  reserve 
steam  plants  now  has  a  connected  load  in  excess  of  370,000  horsepower  (pp. 
1028-1029). 

In  1907,  before  any  large  power  developments  were  made  in  the  State,  the  aver- 
age cost  per  horsepower  year  was  $72,  and  in  1917,  due  to  the  direct  influence 
of  the  power  developments  of  the  Alabama  Power  Co.  and  others,  had  decreased 
to  $21  per  horsepower  year.  On  the  other  hand,  in  the  State  of  Mississippi 
the  cost  per  horsepower  year  was  $97  in  1907,  and  this  had  decreased  to  $93 
in  1917.  This  answers  the  statement  that  the  Alabama  Power  Co.  has  only 
developed  power  which  it  could  sell  in  small  units  and  at  high  prices  (p.  1029). 

It  has  been  charged  that  the  Alabama  Power  Co.  controls  the  utilities  in  the 
principal  cities  of  Alabama.  The  company  has  no  interest  in  the  utilities  at 
Birmingham,  Montgomery,  and  Mobile,  the  principal  cities  of  the  State,  but 
furnishes  the  power  to  the  utilities  operating  in  Birmingham  and  Montgomery. 
The  company  does  control,  however,  the  utilities  in  a  number  of  the  other 
towns  and  cities.  In  every  case  the  company  has  taken  over  utilities  or  con- 
structed systems  in  response  to  the  public  demand  (p.  1029). 

It  is  of  no  importance  that  some  of  the  early  securities  of  the -company  are  held 
out  of  the  United  States,  for  its  licenses  and  its  property  are  always  "subject  to 
the  laws  of  the  State  and  Nation  (p.  1029). 

"Reference  is  made  to  the  company's  letter  of  November  6,  1917,  to  the  Ordnance 
Department  with  regard  to  the  building  of  an  extension  to  the  steam  plant  at 
Gorgas.  It  was  soon  found  that  this  extension  would  not  furnish  the  sufficient 
power  required  by  the  Government,  and  was  also  based  on  financing  through 
the  War  Credits  Board.  Here  again  those  who  wished  to  be  fair  could  have 
learned  that  the  program  desired  by  the  Government  was  different  from  that 
which  was  understood  by  our  company  and,  of  course,  resulted  in  an  increased 
expenditure"  (p.  1031). 

The  Graham  report  refers  to  the  company's  system  as  being  a  small  system,  poorly 
equipped  before  the  war.  Mr.  Martin  states  that  every  citizen  of  Alabama 
knows  that  this  is  wholly  incorrect  (p.  1031). 

If  Congress  should  direct  the  condemnation  of  only  a  part  of  the  land  of  the 
Alabama  Power  Co.  at  Warrior,  it  would  destroy  the  usefulness  of  the  company's 
entire  plant  there  for  any  other  purpose,  rendering  its  investment  in  coal  mines 
practically  useless  and  imposing  obligations  and  burdens  upon  the  company 
which  would  be  very  serious  (p.  1031). 
Alabama  Power  Co..  contract  with. 

In  the  very  beginning  of  the  negotiations  the  Alabama  Power  Co.  explained  that 
the  cost  of  an  extension  of  the  capacity  desired  by  the  Government  would  be 
more  than  the  demands  of  the  company  warranted;  however,  if  the  Govern- 
ment would  aid  in  securing  the  funds  with  which  to  make  such  an  extension 
that  it  would  do  so.  Effort  was  made  by  the  Government  officials  to  advance 
funds  with  which  to  build  the  plant,  but  it  was  found  that  there  was  no  law 
•  under  which  if  could  be  done.  Thereupon  the  company  agreed  to  buy  upon 
demand  of  the  Government  its  interest  in  the  plant  and" substation  at. Gorgas. 
It  further  agreed  to  maintain  the  plant  and  to  pay.  during  the  time  the  Govern- 
ment was  taking  power  under  the  contract  6  per  cent  interest  on  the  actual  cost 
of  the  Warrior  extension  and  the  Warrior  substation,  and  when  the  Government 


26  DIGEST   OF   STATEMENTS  ON    MUSCLE   SHOALS. 

Alabama  Power  Co.,  contract  with — Continued. 

was  not  taking  power  under  the  contract  to  pay  the  Government  for  the  power 
generated  by  the  extension.  Here,  then,  is  property  of  the  Government 
located  where  it  has  a  going  value  as  compared  with  a  junk  value,  and  main- 
tained without  cost  to  the  Government  under  an  agreement  from  which  the 
Government  will  always  receive  a  return  until  it  demands  the  Alabama  Power 
Co.  to  purchase  it  at  its  fair  value  (p.  1030). 

In  the  case  of  its  contract  the  Alabama  Power  Co.  obligated  itself  to  buy  the  addi- 
tional facilities  at  fair  value  to  be  fixed  by  arbitrators,  thus  insuring  that  the 
Government  is  bound  to  receive  a  very  substantial  value  for  them  (p.  1031). 
Bond. 

The  bond  given  by  the  Alabama  Power  Co.  was  executed  between  the  execution 

of  the  contract  and  December  1,  1918  (p.  762). 
Estimates. 

Lock  at  Dam  No.  2.  $2,500.000  (Secretary  of  War)  (p.  775). 
Fertilizer. 

It  has  been  suggested  by  Mr.  Bower  that  secondary  horsepower  could  not  be 
used  for  the  manufacture  of  nitrates.  Mr.  Swann,  who  is  the  president  of  the 
Federal  Phosphorus  Co.  took  the  definite  position  that  secondary  power  could 
be  used.  Mr.  Bower's  earlier  statements  at  hearings  held  in  February,  1921, 
support  the  plan  of  using  secondary  power  for  the  operation  of  the  nitrate 
plant.  If  more  power  is  needed,  it  is  always  there  and  can  be  purchased 
(pp.  801-802). 
Gorgas-Warrior  steam  plant. 

It  was  not  physically  possible  to  extend  and  increase  original  Gorgas  plant  and 
make  the  extension  a  separately  contained  plant  (p.  672). 

It  can  be  separated  [from  plant  of  Alabama  Power  Co.]  in  the  sense  that  it  can 
be  removed.     It  can  not  be  separated  in  the  sense  that  it  can  remain  and 
form  a  distinct  and  separate  operation  (p.  688). 
Land. 

Alabama  Power  Co.  owns  in  fee  simple  the  abutment  sites  at  the  proposed  Dam 

No.  3  (p.  669). 
Legal  questions  involved. 

Statement  made  by  chairman  that  the  national  defense  act  provided  that  the 
Government  alone  should  erect  such  plant?  as  the  Gorgas-Warrior  steam  plant 
and  should  conduct  them  without  any  interference  from  any  private  c  rpo- 
ration  (p.  641). 

It  was  explained  and  understood  clearly  by  representatives  of  the  Government 
and  the  Alabama  Power  Co.  at  that  time  [in  1917]  that  there  was  no  law  under 
which  the  United  States  could  agree  to  sell  that  property  [i.  e.,  Gorgas-Warrior 
steam  plant],  if  created  on  the  land  of  the  company,  to  the  company.  Rep- 
resentatives of  the  Government  asked,  "If  an  arrangement  is  worked  out  by 
which  an  extension  of  your  station  is  created  and  equipment  placed  there, 
will  you  agree  to  purchase  at  the  conclusion  of  the  emergency  on  the  basis  of 
fair  value  to  the  United  States?' '  The  company  agreed  to  do  SD.  So  that  these 
gentlemen  concluded  that  the  Government  would  be  protected  in  the  situa- 
tion if  the  company  would  agree,  on  the  demand  of  the  Government,  to  pur- 
chase the  property  at  fair  value  and  not  at  junk  value.  It  was  the  plan  to 
provide  in  the  contract  that  the  United  States  would,  if  permitted  by  law, 
sell  to  the  company  on  its  demand  (p.  644). 

This  law  [of  July  9,  1918,]  gave  the  authority  from  Congress  to  the  executive 
branch  of  the  Government  to  sell  such  property  as  the  Gorgas-Warrior  steam 
plant.  Captain  Noble  and  the  gentlemen  in  the  nitrates  division  construed  it 
to  give  authority  for  them  to  agree  in  bghalf  of  the  United  States  that  the 
United  States  would  sell  this  property  to  the  Alabama  Power  (Jo.  upon  its 
request.  It  removed  the  uncertainty  which  up  to  that  time  had  existed  as 
to  whether  the  Congress  has  conferred  the  power  on  executive  officers  to  sell 
such  property  as  this  (pp.  645,  646). 

Contract  between  Alabama  Power  Co.  and  the  United  States  is  dated  December 

•  1,  1917;  it  was  executed  on  November  9,  1918,.  In  the  meantime  the  work 
had  been  largely  completed  (p.  647). 

It  was  never  throughout  any  of  the  negotiations  suggested  that  section  124  of  the 
national  defense  act  had  anything  to  do  with  this  question  [i.  e.,  Gorgas-Warrior 
steam  plant]  (pp.  649,  650). 

There  is  a  clause  in  the  contract  that  in  the  event  the  United  States  Government 
should  sell  this  property  or  its  interest  therein  to  any  other  person  except  the 
Alabama  Power  Co.  the  plant  could  not  be  operated  (p.  676). 


DIGEST   OF   STATEMENTS   OX  'MUSCLE   SHOALS.  27 

Legal  questions  involved — Continued. 

Mr.  Martin  recognized,  in  December.  1917.  that  there  was  no  authority  in  the 
Government  to  agree  to  sell  that  which  was  created.  There  was  authority  in 
the  Government  to  create  that  which  was  necessary  to  supply  its  armament 
of  its  fortifications  (p.  733).  Further  legislation  was  necessary  if  the  Alabama 
Power  Co.  was  to  buy  the  property,  but  Colonel  Joyes  proposed  in  the  initial 
memorandum,  that  if  the  law  did  not  permit  the  Government  to  sell  it  to  the 
company,  then  the  Government  would  remove  the  property  from  the  lands 
of  the  company,  because  the  company  could  not  agree  to  sell  the  lands  without 
destroying  its 'plant.  The  companyVas  perfectly  willing  to  agree  to  buy  on 
the  demand  of  the  Government,  and  Colonel  Joyes  recognized  the  fairness  of 
the  Government  agreeing  to  remove  the  property  if  it  did  not  sell  it  to  the 
company  (p.  733). 

Mr.  Martin  was  not  in  touch  with  any  Member  of  Congress  with  reference  to  the 
acts  of  May  and  June.  1918.  He  did  not  know  about  the  legislation  until  the 
August  after  it  was  passed  (p.  734). 

The  signing  of  the  contract  of  the  Alabama  Power  Co.  was  not  deferred  in  the 
hope  that  legislation  would  be  enacted  that  would  legalize  every  phase  of  the 
contract  (p.  738). 

Mr.  Martin  considers  that  the  rights  of  the  Alabama  Power  Co.  under  its  contract 
began  when  the  contract  was  formally  executed  (p.  740). 

Option  claimed  by  the  Air  Nitrates  Corporation  would  seem  not  to  interfere 
with  the  "acceptance  of  the  proposal  of  the  Alabama  Power  Co.  (Letter  from 
Secretary  of  War.  p.  775-776). 

Mr.  Martin  did  not  have  anything  to  do  in  any  way  with  the  legislation  known 
as  section  124  of  the  national  defense  act  (p.  807). 

Mr.  Martin  understands  that  the  recapture  clause  would  relate  only  to  the  invest- 
ment of  the  Alabama  Power  Co.  and  not  to  the  amount  of  money  the  Govern- 
ment has  alrea'dy  put  into  Dam  No.  2  (p.  815). 

Mr.  Martin  thinks  that  section  2  of  the  proposal  of  the  Alabama  Power  Co.  as 
drawn  would  make  the  100,000  secondary  horsepower  available  to  the  Govern- 
ment for  such  purposes  as  lighting  the  camp  at  Anniston  or  Camp  Benniag. 
The  company  is  entirely  willing  that  the  Government  modify  the  wording  of 
this  section  (pp.  863-864). 
Load  factor. 

The  load  factor  is  the  ratio  of  the  average  consumption  to  the  peak  demand; 
that  i^,  the  ratio  of  the  average  horsepower  demand  to  the  maximum  instan- 
taneous horsepower  demand  during  any  given  period  (Mr.  Thurlow)  (p.  868). 
National  defense. 

The  Alabama  Power  Co.  does  not  undertake  any  obligations  with  respect  to 
maintaining  nitrate  plant  No.  2  in  condition  to  produce  nitrates,  but  does 
undertake  to  give  the  Government  power  and  money  (p.  813).. 
Navigation. 

The  building  of  Dam  No.  2  and  Dam  No.  3  will  improve  a  stretch  of  the  river  but 
they  will  not  "put  us  into  the  heart  of  the  raw-materials  regions"  of  the 
Tennessee  River  (p.  850). 

Proposal  of  Alabama  Power  Co.  will  make  the  river  navigable  to  the  extent  of 
the  pool  created  by  Dam  No.  2.    Mr.  Martin  thinks  that  five  or  six  dams  must 
be  built  in  addition  to  Dam  No.  3  before  the  development  for  navigation  on 
the  river  is  complete  (pp.  813,  849-851). 
Power. 

Chief  engineer  of  Alabama  Power  Co.  estimates  that  between  80,000  and  100,000 

horsepower  is  developable  at  Dam  No.  2  (p.  810). 
Power. 

Secondary  power  will  be  available  for  the  operation  of  nitrate  plant  No.  2  approx- 
imately 82  per  cent  of  the  time  (p.  810). 

The  power  to  be  given  to  the  Government  is  to  be  the  second  100,000  horsepower 
available  from  the  normal  flow  of  the  river  (p.  814). 

If  the  Government  does  not  need  all  of  the  100.000  horsepower  which  the  Alabama 
Power  Co.  will  furnish,  the  company  will  buy  what  the  Government  does  not 
use  (p.  815 >. 

The  100.000  horsepower  which  the  Alabama  Power  Co.  offers  to  furnish  to  the 

Government  might  be  valued  at  $753.000  or  $1,000.000  a  year  (p.  842). 
Proposal  of  Alabama  Power  Co. 

Proposal  involves  the  financing  of  the  Wilson  Dam  and  the  power-house  develop- 
ment, the  payment  of  $5.000.000  for  the  Sheffield  steam  plant  and  the  Govern- 
ment's interest  in  the  Warrior  plant,  and  furnishing  the  Government  100.000 
secondary  horsepower  for  its  us?s  at  these  nitrate  plants  (p.  800-801). 


28  DIGEST  OF  STATEMENTS  ON   MUSCLE  SHOALS. 

Proposal  of  Alabama  Power  Co. — Continued. 

Text  of  proposal  (pp.  776-777). 

Summary  of  proposal  and  statement  of  its  advantages.  (Letter  from  Secretary 
of  War,  pp.  774-776.) 

Makers  of  plan  sought  to  meet  requirements  of  the  Government — first,  in  the  desire 
to  produce  cheap  fertilizers;  second,  to  have  nitrates  available  in  time  of  war; 
third,  to  contribute  to  the  industrial  development  of  the  region,  and  to  complete 
the  project  without  further  expense  to  the  Government.  (Letter  from  com- 
pany, p.  777.) 
Savings  to  the  Government. 

Under  the  proposal  of  the  Alabama  Power  Co.  the  Government  would  save  at 
least  $2,000,000  a  year  in  the  form  of  an  outlay  in  interest  which  it  would  other- 
wise pay;  it  would  save  its  annual  losses  by  way  of  maintaining  and  upkeeping 
the  dam  and  the  gates.     In  addition  it  keeps  the  two  nitrate  plants  (p.  856). 
Warrior-Sheffield  transmission  line. 

Right  of  way  for  transmission  line  was  purchased  with  funds  of  the  Alabama 

Power  Co.  (p.  662). 
Washburn,  Frank  S. 

Mr.  Washburn,  president  of  the  American  Cyanamid  Co.,  was  formerly  a  stock- 
holder in  the  Alabama  Power  Co.;  he  is  not  now  (p.  643). 

DIGEST  OF  STATEMENT  OF  MR.  F.  D.  MAHONEY,  ALABAMA  POWER  Co.,  BIRMINGHAM, 

ALA.  (PP.  703-706). 

Alabama  Power  Co.,  contract  with. 

Mr.  Mahoney  was  a  consulting  engineer  along  electrical  lines  to  the  Ordnance 
Department  during  the  war.  He  was  witness  to  the  contract  between  the  War 
Department  and  the  Alabama  Power  Co.,  relative  to  the  Gorgas  steam  plant. 
The  contract  was  signed  on  the  twenty-ninth  floor  of  the  'Equitable  Building, 
in  the  office  of  Mr.  James  Mitchell,  in  New  York  City,  on  November  7,  1918, 
the  day  of  the  false  report  of  the  armistice  (pp.  703-704). 
Mahoney,  F.  D. 

Mr.  Mahoney  went  to  work  with  the  Alabama  Power  Co.  in  February,  1919,  and 
is  at  present  commercial  manager  of  the  company.  Mr.  Mahoney  was  not  in 
the  Army,  but  was  serving  under  Colonel  Joyes  in  the  nitrates  division,  until 
about  July  or  August,  when  he  went  to  New  York  and  was  an  assistant  to  Mr. 
Frederick  Cranford,  director  of  construction  of  all  nitrate  plants.  He  was 
paid  by  the  Ordnance  Department  as  a  civilian  (pp.  704-705). 

Mr.  Mahoney  is  a  stockholder  as  well  as  an  employee  of  the  Alabama  Power  Co., 
as  practically  every  employee  of  that  company  is  (p.  705). 

DIGEST  OF  STATEMENT  OF  HON.  EDWARD  B.  ALMON,  A  REPRESENTATIVE  IN  CONGRESS 
FROM  THE  STATE  OF  ALABAMA  (PP.  741-742,  1002-1018). 

Alabama  Power  Co. 

If  the  Alabama  Power  Co.  should  secure  Muscle  Shoals  there  would  be  formed 

a  combination  of  interests  of  water  power  and  fertilizer  with  power  for  evili 

without  limit  (p.  1010). 
Cyanamid  process. 

The  cyanamid  process  for  the  fixation  of  atmospheric  nitrogen  is  one  of  the  oldest 

and  best  (p.  1002). 
Disposition  of  Muscle  Shoals  proposition. 

It  will  be  to  the  interest  of  the  Government  and  the  public  to  recommend  the 

acceptance  of  the  offer  of  Henry  Ford  and  reject  that  of  the  Alabama  Power  Co. 

(p.  1003). 
The  Alabama  delegation  in  Congress  is  as  a  unit  in  favor  of  the  Ford  offer  and  will 

continue  to  work  together  very  earnestly  to  have  it  accepted  bv  Congress 

(p.  1012). 
Ford  offer  indorsed  by  resolutions  introduced  by  Hon.  C.   W.  Ashcraft  and 

adopted  by  the  Florence  Chamber  of  Commerce,  Florence  Rotarv  Club,  and 

Florence  Exchange  Club  (pp.  1015-1017). 

Ford  offer  indorsed  by  resolutions  of  Birmingham  mass  meeting  (p.  1017). 
Ford  offer  indorsed  by  petition  of  officials  of  Jefferson  County,  Ala.  (pp.  1017- 


DIGEST   OF   STATEMENTS  ON   MUSCLE   SHOALS.  29 

Estimates. 

Dam  No.  2,  s23,000,000  (Mr.  Almon)  (p.  1004). 

l">ara  No.  3,  £17,000,000  (Mr.  Almon)  -p.  10l)i,. 

The  pre-war  estimate  by  United  States  engineers  of  the  amount  chargeable  to 
navigation  was  $8,575,000  (p.  1004*. 

The  present  capacity  of  the  plan  would  produce  about  2,000,000  tons  of  fertilizer, 
which  is  about  30  per  cent  of  the  amount  consumed.  With  cheap  water  power 
the  Ford  Co.  can  make  fertilixer  at  about  one-half  of  the  present  price.  The 
Nation's  fertiliser  bill  is  now  nearly  $250,000,000  annually.  If  the  operation 
of  the  Muscle  Shoals  plant  should  only  result  in  a  20  per  cent  reduction  in 
prices,  that  would  amount  to  $50,000,000  a  year  saving  to  the  farmers.  This 
amount  for  100  years  out  on  compound  interest-  as  the  opponents  of  the  Ford 
offer  have  undertaken  to  do  in  claiming  what  Mr.  Ford  would  make  from  the 
Government  in  compounding  interest— would  be  over  $5,000,000,000  saving  to 
the  farmers  of  the  country  (p.  1000 \. 
Financing  by  the  Go -/eminent. 

When  the  Ford  offer  is  accepted  Congress,  instead  of  appropriating  money  from 
time  to  time  to  complete  the  dams,  could  provide  for  the  issuance  of  -4  per  cent 
bonds,  which  would  be  easily  negotiated.  The  interest  paid  by  the  Ford  Co. 
as  rental  lor  the  power  would  pay  the  interest  on  the  bonds  and  the  amortization 
plan  would  liquidate  the  bonds,  and  in  this  way  the  completion  of  the  dams 
would  not  cost  the  Government  anything  (p.  1007). 
Leases,  length  of. 

Tli ere  should  be  no  objection  to  the  Ford  offer  on  account  of  the  100-year  lease 
period.  The  dams  at  Muscle  Shoals  were  approved  by  the  War  Department 
and  work  commenced  on  one  of  them  before  the  ena'ctment  of  the  general 
water-power  law.  The  development  at  Muscle  Shoals  is  in  a  class  by  itself. 
The  darns  will  be  the  property  of  the  Government,  and  not  a  lessee.  Mr.  Ford 
claims  that  on  account  of  the  heavy  expenses  and  the  time  required  to  provide 
a  use  and  market  for  this  power  that  a  lease  for  less  than  100  years  would  be 
unreasonable  .'p.  lOO?"). 
Leases,  renewal  of. 

If  the  plants  of  the  Ford  Co..  or  its  successors  or  its  assigns,  depending  upon  the 
power  developed  at  Muscle  Shoals,  should  be  denied  the  necessary  power  for 
operation  at  the  end  of  the  lease  it  would  amount  to  a  confiscation  of  their 
plants.  Section  17  of  the  Ford  offer,  which  provides  that  the  company  shall 
ha\  e  a  preferred  claim  to  be  supplied  with  power,  is  reasonable  and  proper 
(p.  100S  i. 
Legal  questions  involved. 

'  '1  remember  last  February  when  we  had  up  the  question  of  an  appropriation  of 
$1 0,000,000  to  complete  the  work  on  the  dam,  the  question  was  first  a  mooted 
question  as  to  whether  it  was  subject  to  a  point  of  order.  After  thorough  inves- 
tigation, Mr.  Graham,  who  was  very  familiar  with  the  subject,  announced  in 
the  open  House  of  Congress  that  the  national  defense  act,  section  124,  author- 
ized this  ?10,000,000  additional  appropriation  to  complete  the  dam."  Mr. 
Almon  thinks  that  the  committee  will  reach  the  conclusion  that  nitrate  plant 
No.  2  and  everything  connected  with  it,  such  as  the  Gorgas  plant,  the  steam 
plant,  and  the  Wilson  Dam,  are  all  part  of  the  nitrates  program  provided  for  in 
the  national  defense  act  ip.  742). 

The  nature  of  the  contract  with  the  Air  Nitrates  Corporation  and  the  amount  which 
has  been  paid  by  the  Government  to  this  company  clearly  shows  that  there  is 
not  even  a  moral  obligation  on  the  part  of  the  Government  (pp.  100S-1009.). 
Navigation. 

The  prewar  estimate  by  United  States  engineers  of  the  amount  chargeable  to 

navigation  was  $8,575,000  (p.  1004). 
Payments  to  the  Government. 

In  normal  times  our  Government  bonds  have  been  issued  for  much  less  than  4  per 
cent,  so  it  is  fair  to  assume  that  the  4  per  cent  which  Mr.  Ford  is  to  pay  as  annual 
rental  for  a  100-year  period  will  be  above  the  average  rate  that  will  prevail 
during  that  time  (p.  1007). 
Proposal  of  Mr.  Ford. 

To  meet  the  terms  of  the  Ford  offer  and  produce  a  proportionate  return  to  the 
Government,  the  Reclamation  Service,  representing  a  Government  net  invest- 
ment of  $125,870,830,  would  have  to  show  an  annual  gross  inccme  of  $10,180,132, 
instead  of  $4,191,844,  which  it  now  shows.  The  Panama  Canal,  representing 

100774—22 3 


30  DIGEST   OF   STATEMENTS  ON   MUSCLE  SHOALS. 

Proposal  of  Mr.  Ford — Continued.- 

an  investment  of  $380,554,949,  would  have  to  earn  $32,450,886  grcss  revenue, 
whereas  last  year's  total  revenues  were  only  $12,040,117  (p.  1004). 

Salvage  to  Government  from  war-time  investments  compared  with  Ford  offer. 
Mr.  Almon  presents  a  table  (p.  1004-1005),  showing  in  part,  the  following: 

Per  cent 
of  cost 
Government  property  sold :  salvaged. 

Muscle  Shoals  nitrate  plants 5.  85 

Old  Hickory  powder  plant 4.  28 

Wooden  ships,  United  States  Shipping  Board,  each 63 

Savings  to  the  Government. 

Mr.  Almon  presents  a  table  showing  an  annual  cash  saving  to  the  Government 
by  the  acceptance  of  the  Ford  offer  of  $747,121.44.  This  figure  represents  an 
estimate  of  the  expenses  of  guarding  and  maintaining  the  nitrate  plants,  the 
uncompleted  work  at  Dam  No.  2,  and  maintaining  the  Muscle  Shcals  Canal 
(p.  1004-1005).  . 

Mr.  Almon  presents  a  table  showing  the  ' '  cost  to  Government  of  the  delay  in 
accepting  Ford  offer."  The  table  (p.  1004-1005)  shows,  in  part,  the  following: 

Total  annual  loss  to  Government  by  delay $2,  902,  521.  00 

Average  monthly  loss 241,  877.  00 

Loss  since  Ford's  offer  was  made  eight  months  ago 1,  935,  016.  00 

Daily  addition  to  ccst 8.  062.  50 

DIGEST  OF  STATEMENT  OF  HON.  WILLIAM  B.  OLIVER,  A  REPRESENTATIVE  IN  CONGRESS 
FROM  THE  STATE  OF  ALABAMA  (PP.  764-774,  833-836,  994-1002). 

Alabama  Power  Co.,  contract  with. 

Article  22  of  the  contract  of  the  Alabama  Power  Co.  gives  the  Government  the 
right  to  call  upon  the  Alabama  Power  Co.  to  purchase  the  Gorgas- Warrior  steam 
plant  "at  any  time  subsequent  to  three  years  after  peace  is  declared"  (p.  765). 

The  Government,  under  the  contract  with  the  Alabama  Power  Co.,  if  valid, 
would  be  postponed  in  its  right  to  sell  for  three  years  from  October,  1921  (p. 
771-772). 

During  the  time  the  Alabama  Power  Co.,  under  its  contract,  will  have  the  use  of 
the  Gorgas  plant  the  value  of  the  property  may  depreciate  and  the  value  of  the 
earnings  of  the  Alabama  Power  Co.  upon  the  use  of  the  property  may  increase  to 
such  an  extent  that  those  earnings  will  pay  the  Government's  claim  on  the 


property  (p.  772). 
sition  of  Mi 


Disposition  of  Muscle  Shoals  proposition. 

Resolution  adopted  on  March  1,  1922,  at  a  mass  meeting  of  5,000  citizens  of  Ala- 
bama affirms  that  at  the  present  rate  of  development  of  the  power  potentialities 
already  under  the  control  of  the  Alabama  Power  Co.  more  than  100  years  will  go 
by  before  all  of  these  dormant  water  powers  are  harnessed.  States* it  would  be 
a  travesty  on  legislation  if  the  Nation's  greatest  water  power  should  be  handed 
over  to  the  Alabama  Power  Co.  under  the  national  water  power  act  (pp.  994-995). 

Ford  offer  indorsed  by  this  resolution  adopted  on  March  1,  1922.    (pp.  994-996). 
Fertilizer. 

Mr.  Oliver  thinks  that  Mr.  Ford  would  be  turning  out  fertilizer  in  less  than  15 
months  if  Congress  voted  to  accept  his  offer  and  directed  the  condemnation 
of  the  Gorgas  plant  (p.  999). 
Legal  questions  involved. 

The  Government's  power  to  condemn  does  not  extend  alone  to  property  essential 
to  the  permanent  operation  of  a  Government  project  or  plant,  but  it  likewise 
extends  with  equal  force  to  any  property  that  may  be  economically  necessary 

•    for  the  construction  of  such  plant  or  project,  or  for  its  temporary  operation  (p. 

The  question  was  suggested  by  Mr.  Martin  and  Mr.  Dent  that  in  all  condemnation 
proceedings  it  must  be  shown  to  the  court  that  there  is  a  public  necessity  for 
the  taking  of  the  property  sought  to  be  condemned.  Mr.  Oliver  affirms  that 
when  Congress  directs  that  any  property  be  taken  in  connection  with  a  public 
project,  such  action  by  Congress  precludes  all  further  inquiry  into  the  question 
of  necessity  (p.  764). 

The  court  simply  held  [in  re  a  case  cited]  that  courts  could  inquire  into  the 
public  use  sought  to  be  declared  by  Congress,  but  when  a  proper  public  use 
was  found  that  then  the  action  of  Congress  in  declaring  what  property  should 


DIGEST  OF  STATEMENTS  ON   MUSCLE   SHOALS.  31 

Legal  questions  involved — Continued. 

be  taken  for  the  enjoyment  of  that  public  use  was  a  legislative  and  not  a  judicial 
question  (p.  833). 

Since  the  Government  owns  a  nitrate  plant  at  Muscle  Shoals,  which  is  to  serve 
the  Government  in  war  and  in  peace  for  a  public  use,  and  since  the  question 
now  before  the  committee  is  whether  the  power  plant  at  Gorgas  and  the  trans- 
mission line  leading  therefrom,  constructed  with  Government  money,  on  land 
of  the  Alabama  Power  Co.,  and  which  supplies  electric  energy  and  power 
to  the  nitrate  plant  at  Muscle  Shoals,  is  necessary  for  the  use  and  enjoyment 
of  such  nitrate  plant,  if  Congress  decides  that  it  is,  and  orders  the  acquirement  of 
the  land  on  which  the  Government  property  is  situated,  by  condemnation, 
that  the  action  of  Congress  would  be  conclusive  on  the  question  of  necessity, 
and  could  not  be  inquired  into  by  any  court  (p.  834). 

The  Gorgas  power  unit  was  built  as  a  plant  to  supply  the  electric  power  to  operate 
a  national  project.  If  now  Congress  should  accept  an  offer  providing  for  the 
maintenance  and  operation  of  that  plant,  so  as  to  conserve  the  two  national 
purposes,  as  expressed  in  the  1916  act,  and  in  that  connection  should  direct 
that  this  Gorgas  plant  be  condemned  and  taken  over,  the  necessity  for  thus 
taking  it  over  could  not  arise  in  any  court  (p.  765). 

Mr.  KEARNS.  *'  Could  the  Government  *  *  *  condemn  property  that  belongs 
to  the  Alabama  Power  Co.  for  Mr.  Ford?  The  question  in  my  mind  is  that  it 
would  not  be  exactly  for  governmental  use." 

Mr.  OLIVER.  "*  r    the  Government  in  making  a  sale  to  Mr.  Ford  or  a  lease 

to  Mr.  Ford  of  this  power  and  of  these  plants,  and  in  authorizing  the  taking  over 
of  the  power  plant  at  Gorgas,  which  has  heretofore  been  used  in  connection 
with  nitrate  plant  No.  2,  is  doing  nothing  but  providing  the  necessary  power 
for  a  governmental  purpose,  the  governmental  purpose  having  been  declared 
in  the  national  defense  act  of  1916  "  (p.  770). 

The  Government  would  have  the  power  to  condemn  the  rights  of  the  Alabama 
Power  Co.  in  the  plant  at  Gorgas  and  take  over  the  entire  plant  (p.  769). 

The  act  of  May  10.  1918,  and  the  act  of  July  9,  1918,  relate  alone  to  property 
acquired  by  the  Government  for  the  war  emergency.  These  acts  never  had  in 
contemplation  any  property  acquired  for  future  use  after  the  war  was  over. 
Therefore,  these  acts  conferred  no  authority  on  the  President  or  the  head  of  an 
executive  department  to  sell  the  plant  at  Muscle  Shoals  or  its  power  unit  at 
Gorgas  (p.  766). 

The  act  of  July  9,  1918,  involved  a  limitation.  It  served  notice  on  the  agent  and 
on  everyone  dealing  with  the  agent  that  the  Government  had  authorized  not  a 
sale  or  an  option  to  buy  property  three  years  after  peace,  but  if  any  sale  was 
made  before  December,  1918,  the  property  sold,  the  party  to  whom  sold,  the 
purpose  for  which  sold,  and  the  amount  received  must  be  reported  to  the 
December  session  of  Congress  (p.  767). 

Mr.  Martin,  who  helped  to  draw  the  contract,  might  be  selected  by  the  Alabama 
Power  Co.  to  be  one  of  the  arbitrators  to  determine  the  value  of  the  property. 
He  would  have  voice,  equal  with  the  agent  to  be  appointed  by  the  Govern- 
ment, in  the  selection  of  a  third  party,  who  together  may  determine  the  price  the 
Alabama  Power  Co.  shall  pay.  '  'Is  there  any  man  who  ever  studied  law  for 
a  day  that  would  for  a  moment  contend  that,  where  you  confer  authority  to  sell 
large  and  valuable  property  upon  an  agent  and  confer  it  upon  him  and  him 
alone,  the  agent  has  the  right,  in  the  exercise  of  that  authority  to  sell,  to 
delegate  to  the  party  who  is  to  buy  the  right  to  appoint  some  one  to  fix  the 
price?  That  is  perfectly  absurd  "  (p.  768). 

The  power  to  sell,  under  the  act  of  July,  1918,  would  certainly  not  confer  on  the 
agent  the  power  to  postpone  the  right  of  the  Government  to  sell  for  three  years 
after  peace,  and  that  is  what  this  contract  with  the  Alabama  Power  Co.  does 
(p.  770). 

Mr.  Oliver  does  not  think  that  Mr.  Dent  will  be  able  to  supply  the  committee 
with  any  authority  to  sustain  the  position  he  announces  as  to  the  law  of  agency. 
Surely  he  will  not  insist  that  the  President  or  head  of  an  executive  department, 
authorized  by  the  July  9  act  to  sell  war  emergency  property,  requiring  that 
where  a  sale  was  made  that  a  report  should  be  submitted  to  the  next  ensuing 
regular  session  Of  Congress,  showing  the  property  sold,  to  whom  sold,  for  what 
purpose  sold,  and  the  price  received,  would  authorize  the  President  or  head  of 
an  executive  department,  one  or  both,  to  enter  into  a  contract  which,  according 
to  its  terms,  would  postpone  the  right  of  the  Government  to  sell  the  property 
to  anyone  for  six  years,  giving  to  the  Alabama  Power  Co.  during  this  time  the 
use  of  the  property  and  the  right  to  purchase  if  they  so  elected,  and  if  the  price, 


32  DIGEST  OF  STATEMENTS   ON   MUSCLE   SHOALS. 

Legal  questions  involved — Continued. 

when  its  election  to  purchase  was  so  executed,  it  ever,  could  not  be  agreed  on,, 
that  then  the  power  company  might  appoint  one  arbitrator,  the  Government 
one,  and  these  two  a  third,  could  by  any  stretch  of  the  imagination  be  con- 
strued as  a  proper  exercise  of  authority  by  the  President  or  the  head  of  an 
executive  department  under  the  said  act  (p.  834). 

The  term  "head  of  an  executive  department"  can  be  construed  to  include  only 
the  Cabinet  officers  who  are  at  the  head  of  the  10  executive  departments  (p. 

•jf*>j\ 

Mr.  Oliver  thinks  that  article  22  of  the  alleged  contract  of  the  Alabama  Power 
Co.  is  not  a  binding  agreement  on  the  part  of  the  Government  (p.  769). 

The  contract  with  the  Alabama  Power  Co.  is  absolutely  void  (p.  772). 

You  can  not  suffer  the  Government  to  expend  $5,000,000  on  your  property,  at  a 
place  you  consented  and  permitted  it  to  be  spent,  and  then  come  in  and  threaten 
the  Government,  in  the  event  it  institutes  condemnation  proceedings  so  as  to 
acquire  and  utilize  that  property  in  the  future  as  it  has  been  utilized  in  the- 
past  for  Governmental  purposes,  that  you  will  claim  large  consequential  dam- 
ages. There  could  not  be  any  principle  of  law  sounder  than  that  the  Alabama 
Power  Co.  will  be  limited  to  very  small  consequential  damages  under  those 
circumstances  (p.  773). 

If  Congress  passed  a  law  directing  the  condemnation  they  could  pass  an  appro- 
priation limiting  the  amount  of  money  that  could  be  paid ;  if  the  assessment 
exceeded  the  appropriation  it  could  be  provided  afterwards  (p.  773). 

The  contract  of  the  Alabama  Power  Co.  is  not  for  a  sale,  but  it  is  for  an  option  on 
their  part  to  buy  (p.  773). 

The  purpose  of  the  Dent  Act,  passed  in  1919,  was  to  authorize  the  adjustment, 
and  settlement  of  claims  against  the  Government  and  a  limitation  was  fixed 
on  the  time  when  they  could  be  adjusted.  It  has  absolutely  no  effect  in  a 
matter  of  this  kind  (p.  774). 

Mr.  Oliver  thinks  that  claims  of  the  Alabama  Power  Co.  would  not  involve  three- 
or  four  years  of  litigation  if  Congress  should  by  vote  accept  the  offer  of  Mr. 
Ford  and  direct  condemnation  of  Gorgas  plant  (p.  999). 

The  Alabama  Power  Co.  was  responsible  for  the  proviso  that  was  put  in  section 
124  of  the  national  defense  act  of  1916  (p.  1001). 

DIGEST  OF  STATEMENT  OF  MAJ.  JOHN    G.  BOOTON,   ORDNANCE  DEPARTMENT,  IN 
CHARGE  OF  CONTRACT  SECTION  (PP.  885-889). 

Alabama  Power  Co.,  contract  with. 

Major  Booton,  who  is  keeper  of  the  records,  contracts,  orders,  etc.,  of  the  Ord- 
nance Department,  read  a  part  of  Bulletin  No.  50,  issued  by  the  Secretary 
of  War,  August  31,  1918,  which  gave  the  Director  of  the  Purchase,  Storage 
and  Traffic  Division  authority  to  dispose  of  such  supplies  embraced  within 
the  provisions  of  the  act  of  July  9,  1918.  Major  Booton  also  read  Supply 
Bulletin  No.  13,  headed  "War  Department,  Purchase,  Storage  and  Traffic 
Division,  General  Staff,  Purchase  and  Supply  Branch,  \Vashington,  August 
3,  1918,"  which  contains  contract  provisions  regarding  increased  manufac- 
turing facilities,  and  which  was  signed  by  authority  of  the  Secretary  of  War 
by  George  W.  Goethals,  major  general,  Assistant  Chief  of  Staff,  Director  of 
Purchase,  Storage  and  Traffic.  Major  Booton  read  office  order  No.  157,  dated 
March  3,  1918,  issued  by  the  Chief  of  Ordnance,  which  appointed,  among  others, 
Lieut.  Col.  William  Williams  as  a  contracting  officer.  Colonel  Williams  was 
a  contracting  officer  from  March  2,  1918,  until  February  4,  1919  (pp.  886-887). 
There  is  attached  to  the  retained  copy  of  the  contract  with  the  Alabama  Power 
Co.  in  the  nitrate  division  an  approval  carrying  the  signatures  of  the  officers 
approving  the  contract,  and  the  statement  "approved  by  Board  of  Contract 
Review  of  Procurement  Division,  November  8,  W.  Arthur  Babson,  secre- 
tary." That  board  was  an  ordnance  function,  a  committee  appointed  by  the 
order  of  the  Purchase,  Storage  and  Traffic  Division  of  the  General  Staff.  The 
names  of  the  signing  officers  are  Col.  J.  W.  Joyes,  Maj.  C.  F.  Beanies,  Maj. 
E.  V.  Prentiss,  Capt.  G.  M.  Alexander,  Lieut.  Dale  Bumstead,  R.  H.  Swart- 
wout.  Colonel  Joyes  was  the  senior  officer,  and  there  were  six  initiators, 
each  of  whom  was  responsible  for  his  separate  detail.  Colonel  Joyes  was  in 
charge  of  the  nitrate  division,  so  he  was  the  one  most  interested  (pp.  887-888). 
Major  Booton,  in  answer  to  questions  of  Mr.  McKenzie,  stated  that  nothing  at 
all  had  been  found  in  the  records  to  indicate  that  the  Secretary  of  War  gave 
any  directions  in  connection  with  the  Alabama  Power  Cb.'s  contract;  rior  had 


DIGEST   OF   STATEMENTS   OX    MUSCLE   SHOALS.  33 

Alabama  Power  Co.,  contract  with— Continued. 

anything  been  found  to  indicate  the  approval  of  the  Secretary  of  War  except 
the  approval  by  his  authorized  agencies.  The  clearance  committee  of  the 
Purchase.  Storage,  and  Traffic  Division  of  the  General  Staff  was  one  of  these 
agencies.  The  Chief  of  Ordnance  delegated  his  authority  to  the  Purchase, 
Storage,  and  Traffic  Division  to  approve  forms  and  individual  contracts,  which 
is  the  reason  for  the  approval  of  the  clearance  committee,  and  the  Chief  of 
Ordnance  gets  his  general  authority  directly  from  acts  of  Congress.  In  the 
Revised  Statutes,  section  1164.  it  is  prescribed  "it  shall  be  the  duty  of  the 
Chief  of  Ordnance,  under  the  direction  of  the  Secretary  of  War.  to  make  con- 
tracts of  purchase  for  procuring  necessary  supplies  and  ordnance  stores  for 
the  use  of  the  armies  of  the  United  States  "(p.  888). 

Mr.  McKenzie  stated  that  there  was  nothing  whatever  before  the  committee 
up  to  date  that  indicates  that  the  Secretary  of  War  had  anything  to  do  with 
either  directing  or  procuring  or  preparing  the  Alabama  Power  Co.'s  contract, 
whereupon  Mr.  Dent  interposed,  and  stated  that  ;'The  first  document  we 
offered  was  a  general  order  issued  by  the  Secretary  of  War  authorizing  con- 
tracts in  the  various  departments  to  be  made  in 'this  way.  There  was  no 
specific  authority  for  this  particular  contract,  but  general  authority  for  con- 
tracts of  this  nature.  That  is  the  first  document  we  put  in  the  record  this 
afternoon  *  *  *  in  connection  with  the  act  of  July  9"  (p.  888). 
The  contract  was  approved  November  8,  1918.  prior  to  the  signing  on  the  9th. 
The  approval  was  supposed  to  be  before  the  signature.  Sometimes  it  was 
before  the  contracts  were  sent  out  and  before  the  contractor  was  allowed  to 
sign  or  before  the  Government  released  it  (p.  889). 

DIGEST  OF  STATEMENT  OF  MR.  FREDERICK  E.  ENGSTRUM,  PRESIDENT  OF  THE  NEW- 
PORT SHIPBUILDING  CORPORATION  (PP.  895-900,  935-939). 

Cost  of  construction. 

Construction  of  Dam  Xo.  2  under  Engstrum  proposal  is  not  a  cost-plus  method, 
because  in  the  5  per  cent  plus  the  cost  of  construction,  the  overhead  which 
always  goes  into  the  cost  of  a  project  is  under  the  plus,  in  this  condition.  Mr. 
Engstrum  believes  that  he  can  complete  the  dam  by  the  Government  paying 
him  5  per  cent,  at  less  expense  than  the  Army  Engineers  could  complete  it 
without  the  5  per  cent  (p.  938). 

The  overhead  spoken  of  in  the  construction  of  Dam  No.  2  is  the  accounting  system 
necessary  to  carry  on  the  business  and  the  engineering  companies  which  operate 
together'  with  Mr.  Engstrum's  company  and  all  expenses  entirely  outside  of 
the  lump-sum  contracts  which  are  let.  All  contracts  will  be  let  a*s  lump-sum 
contracts.  To  carry  on  those  lump-sum  contracts,  all  the  other  expense  falls 
on  the  operating  company .  The  plans  of  the  engineers  of  the  War  Department 
that  are  now  completed  will  be  used,  but  it  requires  Mr.  Engstrum's  engineers 
to  take  it  up  where  the  War  Department  has  brought  it  up  to  this  time,  and  in 
conjunction  with  the  engineers  of  the  War  Department  to  complete  the  contract. 
Taking  the  expense  over  three  years  Mr.  Engstrum  does  not  figure  there  is  any 
profit  to  speak  of.  It  is  barely  an  equal  proposition  (p.  938). 
Disposition  of  Muscle  Shoals  proposition. 

The  two  nitrate  plants,  one  having  cost  $13,000.000  and  the  other  $67,000,000,  can 
be  put  in  a  high  state  of  efficiency  for  about  $7,000,000;  and  the  greatest  dam  in 
the  world  partly  constructed  at  *a  cost  of  $17.000,000  will  soon  be  worthless 
unless  completed.  Obviously  it  is  economy  and  good  business  to  finish  this 
dam.  Mr.  Engstrum  submits  that  his  proposal  "provides  for  utilizing  the 
Muscle  Shoals  property  in  the  most  efficient  manner,  at  the  least  possible  cost, 
and  also  guarantees  a*  most  ~  liberal  cash  return  to  the  Government  after  the 
investment  (p.  9:^i  . 
Proposal  of  Mr.  Engstrum. 

Summary  of  outstanding  features.     (Letter  of  submittal,  Feb.  23,  1922,  p.  896.) 

Text  of  proposal  (pp.  896-899). 

The  only  return  Mr.  Engstrum's  corporation  expects  to  get  is  what  it  is  able  to 
conserve  or  to  save  from  the  excess  power  and  the  practical  utilization  of  that 
power  in  utilizing  the  high-peak  load,  utilizing  the  secondary  power  to  its 
utmost  advantage,  holding  all  the  power  intact  and  keeping  the  stand-by  steam 
plants  available  to  make  up  the  gap  where  the  secondary  power  falls  off,  and  the 
practical  and  economical  usage  of  all  of  the  assets  which  are  there,  and  which 
will  be  there  upon  completion  of  the  project,  not  offering  to  purchase  any  of  the 
property  but  all  of  the  property  remaining  intact  and  in  the  ownership  of  the 
Government  (p.  936). 


34  DIGEST   OF   STATEMENTS  ON   MUSCLE   SHOALS. 

DIGEST  OF  STATEMENT  OF  HON.  MARION  BUTLER,  ATTORNEY  FOR  MR.  FREDERICK 
E.  ENGSTRUM  (pp.  900-935,  989-993). 

Mr  En^strum's  corporation  will  give  a  bond  for  the  faithful  performance  of  every- 
thing it  agrees  to  do  as  lessee,  and  it  is  to  be  approved  by  the  Government. 
The  company  would  be  responsible  under  the  bond  the  very  first  time  the 
Government  would  call  upon  it  under  any  clause  of  the  bond  for  any  part,  or 
for  its  first  failure  to  perform;  and  if  the  company  defaulted  on  the  bond  in  one 
respect,  it  would  be  called  to  account  at  once  in  damages  (p.  915). 

The  one  important  thing  needed  to  protect  the  interests  of  the  Government  and 
the  public  is  a  good  and  sufficient  bond,  and  that  Mr.  Engstrum's  company 
is  prepared  to  furnish  (p.  991). 
Capital  investment  of  Mr.  Engstrum's  corporation. 

Amount  of  capitalization  considered  entirely  immaterial,  since  the  company  is 
giving  a  bond.     "But    *    *    *    we  are  ready  to  meet  any  suggestions 
along  that  line  "  (p.  910). 

Mr.  Engstrum,  who  signs  the  proposition,  is  alone  financially  responsible  lor 
all  the  capital  that  will  be  needed  until  the  corporation  becomes  an  operating 
concern.  Mr.  Butler  thinks  that  they  can  meet  Mr.  Miller's  suggestion  that 
the  corporation  have  a  stated  paid-up  capital  of  $1,000,000  to  $5,000,000  (p. 
922). 

It  might  be  more  practicable  for  the  personnel  of  the  company  to  become  per- 
sonally responsible  in  addition  to  the  bond,  that  would  be  better  than  putting 
up  a  lot  of  idle  money  (p.  923). 
Cost  of  construction. 

Amendment  to  section  19,  regarding  the  cost  of  construction,  which  reads  as 
follows,  "The  cost  in  each  case  to  be  determined  by  the  lowest  responsible 
bid  resulting  from  a  public  offer  by  lessee,  and  by  the  contract  awarded  by 
lessee  to  such  bidder,  subject  to  approval  by  the  Secretary  of  War, "  makes  it 
perfectly  clear  and  certain  that  the  construction  will  be  done  at  the  lowest 
possible  cost;  and  it  will  also  be  done  in  the  most  efficient  manner,  because  one 
of  the  best  engineers  in  the  country  will  be  in  charge  (p.  907). 

Mr.  Engstrum's  proposal  is  not  a  "cost  plus"  one,  as  understood  during  and 
since  the  war.    The  cost  is  fixed  by  the  lowest  bidder,  and  a  5  per  cent  fee  on 
that  low  and  fixed  cost  is  asked,  in  that  way  the  Government  is  protected  under 
this  contract  (p.  919). 
Dams. 

Mr.  Engstrum's  proposal  does  not  provide  for  building  Dam  No.  3  at  this  time, 
but  it  does  provide  for  doing  it  later,  any  minute  that  the  Government  decides 
as  a  matter  of  policy  to  proceed  with  it  (p.  903). 
Disposition  of  Muscle  Shoals  proposition. 

Mr.  Engstrum  proposes  to  use  both  nitrate  plants  for  making  nitrates.  Nitrate 
plant  No.  1  is  the  only  plant  in  this  country,  except  a  small  one  built  at  Syracuse 
since  the  war,  that  is  built  to  use  the  Haber  process.  It  is  a  shocking  proposi- 
tion to  abandon  the  use  and  development  of  that  process  at  Muscle  Shoals,  and 
to  go  back  to  simply  running  the  cyanamid  plant  there,  which  is  more  ex- 
pensive and  which  has  not  the  same  future  possibilities  of  development.  We 
know  to-day  that  we  can  redesign  nitrate  plant  No.  1,  and  run  it  perfectly  by  the 
Haber  process.  The  one  serious  defect  in  the  plant  is  the  need  of  an  efficient 
catalyst.  An  investment  of  $4,000,000  (the  estimate  given  by  General  Williams, 
Chief  of  Ordnance),  therefore,  will  make  the  plant  a  successful  going  concern, 
the  best  and  most  efficient  Haber  process  plant  in  the  world  (pp.  902-903). 

It  is  clear  that  we  need  to-day  all  the  nitrogen  which  can  be  produced  at  Muscle 
Shoals  by  both  nitrate  plant  No.  1  and  nitrate  plant  No.  2,  and  that  we  should 
lose  no  time  in  putting  both  plants  to  work  on  full  time.  No  one  who  is  con- 
cerned in  providing  this  country  with  an  adequate  supply  of  nitrogen  can 
favor  the  scrapping  of  plant  No.  1,  which  would  mean  the  abandonment  of 
the  Haber  process  (p.  990). 
Fertilizer. 

The  United  States  is  using  less  fertilizer  material  than  the  small  country  of  Ger- 
many. We  are  .starving  our  soil.  Germany  used  last  year  500,000  tons  of 
nitrate  for  fertilizer;  we  used  less  than  175,000  tons,  and  at  least  half  of  that  we 
imported  from  Chile  (p.  901). 

Mr.  Engstrum  wants  the  Secretary  of  Agriculture  to  regulate  the  amount  of 
nitrates  to  be  offered  for  sale,  and  also  the  amount  of  commercial  fertilizers. 
A  complete  fertilizer  is  not  the  ideal  thing.  Even  now  many  farmers  are  buying 
their  ingredients  and  mixing  them  themselves.  But  there  should  be  some  of 


DIGEST   OF   STATEMENTS  ON   MUSCLE   SHOALS.  35 

Fertilizer — Continued. 

the  complete  fertilizer  prepared  and  ready  to  sell  to  be  used  by  farmers  who 
have  not  yet  learned  to  mix  their  own  (p.  906). 

Nitrate  plants  Xos.  1  and  2  will  produce  between  2,000:000  and  3.000,000  tons  of 
fertilizer,  or  about  one-third  of  the  fertilizer  needed  (p.  917). 

The  results  which  will  come  from  the  operation  of  this  great  plant  in  the  produc- 
tion of   fertilizer  are  staggering.     The  benefits  will  be  nation-wide.     It  is 
truly  national,  a  tremendous  governmental  function  reaching  to  every  person 
in  the  Nation  (p.  929). 
Haber  process. 

Germany  used  over  500.000  tons  of  nitrogen  in  the  form  of  ammonia  last  year. 
She  made  300,000  tons  of  this  ammonia  from  the  air  by  the  Haber  process,  which 
is  the  most  efficient  process  for  the  fixation  of  atmospheric  nitrogen  (p.  990). 
Legal  questions  involved. 

The  question  as  to  whether  the  Government  would  have  a  legal  or  moral  right  to 
take  the  Gorgas- Warrior  steam  plant  away  from  the  Alabama  Power  Co.  does 
not  enter  Mr.  Engstrum 's  proposition.  His  offer  is  the  use  of  it  under  a  lease 
that  would  come  within  that  contract  which  the  Government  has  with  them. 
Mr.  Engstrum's  corporation  could  sell  the  Alabama  Power  Co.  all  the  power 
that  they  need  for  their  customers,  and  that  is  all  the  need  they  have  for  that 
plant.  So,  there  would  be  no  litigation  about  it  under  Mr.  Engstrum's  lease 
•pp.  914-915). 

The  contracts  between  the  United  States  and  the  Air  Nitrates  Corporation  and 
the  United  States  and  the  Alabama  Power  Co.  would  not  interfere  with  this 
proposition.  The  contract  with  the  Air  Nitrates  Corporation  is  only  in  the 
event  the  Government  sells,  and  Mr.  Engstrum  is  simply  leasing.  In  the  case 
of  the  Alabama  Power  Co.  the  Government  could  lease  that  property  just  as 
the  Government  is  using  it  now  (p.  918). 
National  defense. 

One  of  the  important  features  of  the  Engstrum  proposal  is  that  the  nitrate  plant 

will  be  ready  to  produce  nitrates  for  national  defense  in  time  of  war  (p.  929). 
National  defense  act. 

Mr.  Engstrum  is  primarily  interested  in  the  operation  of  this  property  as  provided 
in  the  national  defense  act.  "We  are  not  buying  anything:  we  are  not  taking 
the  Government's  title.  We  are  simply  offering  to  carry  out,  as  we  see  it,  the 

.    declared  governmental  purpose  in  connection  with  this  property,  and  then  to 
turn  it  back  at  the  end  of  50  years  if  the  lease  is  not  renewed    *          *  "  (p.  908) . 
Nitrate  plants. 

It  is  a  simple  matter  to  redesign  nitrate  plant  No.  2.  The  process  for  making  a 
nitrate  for  explosives  and  a  nitrate  for  fertilizer  is  exactly  the  same  under  the 
cyanamid  process  down  to  the  last  step.  By  simply  adding  the  sulphuric  acid 
equipment,  the  plant  will- be  ready  to  make  both  kinds  of  nitrates  at  all  times, 
and  the  highest  estimate,  as  given  by  both  General  Williams  and  Major  Burns, 
$3,000,000,  will  be  sufficient  to  do  this  (p.  904). 

The  chief  defect  in  nitrate  plant  No.  1  is  the  want  of  an  effective  catalyst.  Since 
the  war  we  have  made,  in  our  experimental  laboratories  here  in  Washington, 
a  catalyst  which  is  to-day  the  best  in  the  worlti.  We  have  also  succeeded  since 
the  war  in  making  the  largest  and  most  efficient  electrolytic  cell  in  the  world. 
This  cell  is  the  most  improved  method  known  for  producing  hydrogen  gas. 
This  new  electrolytic  cell  is  a  10,000-ampere  cell,  and  it  is  a  tested  success. 
So  we  already  have  in  the  possession  of  our  Government  two  important  improve- 
ments on  the  Haber  process  (the  new  catalyst  and  the  new  electrolytic  cell), 
which  will  make  this  plant  at  once  the  most  efficient  on  earth  for  the  fixation 
of  atmospheric  nitrogen  (pp.  990-991). 
Payments  to  the  Government. 

Under  an  estimated  development  of  440,000  kilowatts,  the  1  mill  per  kilowatt 
hour  will  produce  $3,500,000  a  year,  which  will  go  either  into  the  United  States 
Treasury  or  be  used  in  financing  the  making  and  selling  of  cheap  nitrates  for 
fertilizers,  at  the  option  of  the  Government.  When  Dam  No.  3  is  built  and 
another  nitrate  plant  is  in  operation  there,  then  the  income  to  the  Government 
will  be  proportionately  increased,  and  so  on  with  all  the  other  proposed  devel- 
opments during  the  50*  years  of  this  lease  (p.  906). 
Plans  of  Mr.  Engstrum. 

Mr.  Engstrum  would  not  spend,  probably,  any  more  money  in  building  more 
dams  after  finishing  Dam  No.  2  until  there  was  a  need  for  more  power  and  until 
the  art  of  making  nitrates  is  more  fully  developed.  But  cheaper  methods  of 
making  nitrates  are  sure  to  be  found,  and  when  that  time  comes  Mr.  Engstrum 


36  DIGEST   OF   STATEMENTS   ON   MUSCLE   SHOALS. 

Plans  of  Mr.  Engstrum— Continued. 

contemplates  putting  in  additional  nitrate  plants,  building  extra  dams,  and 
as  fast  as  necessary  utilizing  all  of  the  tremendous  water  power  in  producing 
cheaper  nitrates  (pp.  903-904,  991). 

When  Dam  No.  3  is  built  Mr.  Engstrum  will  put  in  another  nitrate  plant,  and  it 
its  size  is  in  the  same  proportion  to  the  output  of  the  dam,  then  Mr.  Eng- 
strum's  proposal  will  apply  to  it  in  the  same  way,  and  if  not,  the  difference 
can  then  be  adjusted;  and  so  on  with  the  whole  development  of  the  river. 
But  when  cheaper  nitrates  can  be  made  at  a  profit,  then  the  returns  to  the 
Government  will  be  greater  (p.  913). 

Mr.  Engstrum's  corporation  hopes  to  sell  power  at  wholesale  to  all  the  power 
companies  near  by.     Mr.  Butler  thinks  every  power  company  around  will  want 
to  tie  in  with  Mr.  Engstrum's  corporation,  and  he  thinks  they  [the  companies] 
would  build  connecting  lines  to  get  the  power  (p.  912): 
Proposal  of  Mr.  Engstrum. 

Mr.  Engstrum's  proposal  can  not  be  a  failure.  The  corporation  gives  bond  to  run 
the  nitrate  plants  and  it  can  be  done  by  the  sale  of  power,  no  matter  if  the 
nitrates  are  sold  below  cost.  The  plant  finances  itself,  pays  a  profit,  pays  the 
Government  a  profit,  and  produces  cheap  nitrates.  This  is  plain,  simple,  and 
certain  (p.  933). 

When  Dam  No.  2  is  completed,  there  will  be,  under  Mr.  Engstrum's  contract,  an 

assured  profit  both  to  the  Government  and  to  his  company  (p.  991). 
Proposal  of  Mr.  Engstrum  compared  with  Mr.  Ford's  tender. 

Mr.  Engstrum's  lease  of  this  great  water  power  should  provide :  (1)  That  a  sufficient 
amount  of  the  power  developed  at  Dam  No.  2  should  be  used  from  the  beginning 
to  operate  both  nitrate  plant  No.  1  and  nitrate  plant  No.  2  at  their  full  capacity; 
(2)  that  the  remaining  power  to  be  developed  at  Dam  No.  3  and  at  other  dams 
on  the  Tennessee  River  should  be  conserved  and  used  to  operate  more  nitrate 
plants  by  the  cheap  Haber  process,  as  they  are  required  to  meet  the  growing 
need  for  nitrogen.  It  would  be  most  improvident  to  lease  Muscle  Shoals, 
having  a  potential  future  of  at  least  1,000,000  horsepower,  with  only  enough 
power  reserved  to  operate  nitrate  plant  No.  2,  which  will  produce  less  nitrogen 
than  our  present  needs,  with  all  the  remainder  of  this  enormous  water  power 
surrendered  and  mortgaged  to  a  private  monopoly  for  100  years  or  more  (p.  991). 

Under  the  Engstrum  proposal,  the  property,  which  will  enormously  increase  in 
value,  will  be  returned  to  the  Government  at  the  end  of  50  years,  and  with  no 
strings  to  it.  No  preference  is  asked  for  at  the  end  of  the  50-year  period  (p.  991). 

Mr.  Engstrum  does  not  offer  to  capitalize  his  company  for  $10,000,000  because  it 
is  not  buying  any  property  from  the  United  States,  and  because  it  is  not  pro- 
posing to  use  the  larger  part  of  this  power  for  a  manufacturing  program  for 
private  profit.  The  only  capital  which  it  will  need  will  be  sufficient  capital 
for  operating  expenses  until  it  is  a  going  concern.  That  amount  the  company 
will  be  amply  able  to  furnish.  The  $10,000,000  capital  of  Mr.  Ford's  company 
will  be  used  to  build  and  operate  automobile  plants.  Neither  the  Govern- 
ment nor  the  general  public  will  be  profited  to  the  extent  of  one  penny  by  the 
$10,000,000  capitalization  (p.  991). 

If  Mr.  Ford's  proposal  should  be  accepted  the  Government  will  be  required  to 
spend  over  $60,000,000  to  complete  Dam  No.  2  and  also  to  build  outright  Dam 
No.  3.  The  only  benefit  which  will  accrue  to  the  public  will  be  from  the  opera- 
tion of  nitrate  plant  No.  2  to  make  fertilizer  at  8  per  cent  profit.  Under  the 
Engstrum  proposal  the  Government  is  required  to  spend  only  the  amount  of 
money  necessary  to  finish  Dam  No.  2  and  to  redesign  the  two  nitrate  plants, 
which  is  estimated  to  be  within  $30,000,000.  "We  agree  to  use  all  of  the  power 
that  is  necessary  to  run  both  nitrate  plants  at  their  full  capacity,  and  besides 
to  make  nitrates  regardless  of  whether  the  same  can  be  made  at  8  per  cent  or 
not"  (p.  992). 

The  Engstrum  company  proposes  to  run  a  research  plant  to  develop  improved 
methods  for  producing  cheap  nitrates,  which  will  mean  cheaper  fertilizers. 
Vastly  greater  results  can  be  expected  from  a  research  plant  operated  under 
conditions  where  the  whole  purpose  of  the  plant  is  to  produce  more  and  cheaper 
nitrates  than  under  a  lease  where  the  making  of  nitrates  will,  at  best,  be  a  side 
issue.  There  is  not  a  reasonable  ground  for  even  a  hope  that  Mr.  Ford  will 
ever  develop  any  improved  process  for  making  nitrates  at  less  than  present 
prices  (pp.  992-993). 

Mr.  Engstrum's  company  proposes  to  sell  the  nitrates  to  be  produced  at  both 
plants  at  Muscle  Shoal's  at  a  price  lower  than  the  cost  of  the  Chilean  nitrates, 
the  price  to  be  fixed  by  the  Secretary  of  Agriculture.  This  means  that  all  the 


DIGEST   OF   STATEMENTS   OX    MUSCLE   SHOALS.  37 

Proposal  of  Mr.  Engstrum,  etc. — Continued. 

nitrates  produced  will  be  sold  at  a  loss  for  the  present  of  from  $5  to  $10  per 
ton.  -To  cover  this  loss,  the  company  proposes  to  sell  at  wholesale  all  of  the 
excess  power  produced  at  Dam  No.  2  not  needed  to  run  the  two  nitrate  plants 
and  for  the  present  to  set  aside  1  mill  for  each  kilowatt-hour  of  power  sold  to 
finance  the  selling  of  nitrates  and  fertilizers  at  a  price  below  cost.  When  the 
Haber  process  makes  it  possible  for  a  larger  amount  of  nitrogen  to  be  taken 
from  the  air  at  a  cost  much  below  the  present  selling  price  of  Chilean  nitrates, 
then  the  1  mill  per  kilowatt-hour  for  power  sold  will  be  turned  by  the  company 
into  the  Treasury  of  the  United  States.  On  the  estimated  production  of  440,000 
kilowatts  at  Dam  No.  2  this  1  mill  per  kilowatt-hour  will  mean  an  income  to 
the  Government  of  $3,500,000  a  year.  Here  is  a  return  of  $3,500,000  on  an 
investment  of  830.000,000,  as  against  Mr.  Ford's  4  per  cent  return,  which  is 
SL'. 400,000  on  an  investment  of  $60,000,000  (p.  993). 

The  Ford  proposal  must  be  accepted  or  rejected  as  a  whole:  the  Engstrum  pro- 
posal is  divisible.  If  the  Government  prefers  itself  to  finish  Dam  No.  2  and 
redesign  the  nitrate  plants,  then  Mr.  Engstrum's  company  will  lease  the  prop- 
erty when  it  is  ready  to  be  operated;  otherwise  the  company  is  ready  to  han- 
dle the  construction' also  (p.  993). 
Proposal  of  Mr.  Ford. 

There  are  two  basic  defects  in  the  Ford  offer: 

(a)  It  is  not  a  good  business  proposition  on  the  part  of  the  Government. 
•f>    It  defeats  "the  purpose  of  the  Government  as  declared  in  the  national 
defense  act  by  diverting  the  public  money  already  invested  and  to  be 
invested,  largely  to  serve  the  ends  of  a  private  monopoly  (p.  992). 
Rentals. 

Mr.  Engstrum  proposes  to  sell  the  surplus  power  at  wholesale  and  to  set  aside 
1  mill  for  each  kilowatt-hour  of  power  sold,  to  be  paid  into  the  Treasury  of  the 
United  States  as  rental  for  the  lease  of  the  property  ip.  906). 
Subsidy. 

Under  the  Engstrum  proposal  the  plan  is  to  begin  at  once  producing  nitrates  at 
both  plants  by  both  methods  and  to  continue  to  produce  without  asking  the 
Government  for  a  subsidy.  The  water  power  will  be  made  to  finance  the  mak- 
ing of  these  nitrates  from  the  beginning,  no  matter  what  the  cost  may  be, 
therefore  a  part  of  the  power  will  be  used  for  running  these  plants  and  a  part 
will  be  sold  at  wholesale,  1  mill  for  each  kilowatt-hour  of  power  sold  to  be  set 
aside  and  paid  into  the  United  States  Treasury  as  rental  for  the  lease  of  the 
property.  If  the  Secretary  of  Agriculture  thinks  that  the  nitrates  should  be 
sold  to  the  farmers  at  $10  a  ton  less  than  it  may  cost  to  produce  them,  in  order 
to  furnish  nitrates,  then  this  loss  of  $10  a  ton  is  taken  out  of  the  sum  arising  from 
the  1  mill  per  kilowatt-hour  of  the  power  sold  before  that  sum  is  paid  into 
the  Treasury.  It  is  only  by  this  kind  of  a  subsidy  that  nitrates  can  now  be 
made  from  the  air  and  sold  at  a  price  less  than  Chilean  nitrates  (pp.  905-906). 

DIGEST  OF  STATEMENT  OF  MR.  J.  H.  LEVERING,  WASHINGTON',  D.  C.  (PP.  939-946). 

Muscle  Shoals  proposition. 

Mr.  Levering  does  not  believe  that  all  the  engineers  in  the  world  could  build  the 

dam  any  cheaper  or 'better  than  the  Army  engineers  are  now  doing  it  (p.  939). 
Proposal  of  Alabama  Power  Co. 

Under  its  proposition  the  Alabama  Power  Co.  will  take  over  the  wires  between 
Muscle  Shoals  and  Gorgas.  One  of  the  essential  things  to  work  the  nitrate  plant 
is  the  quarry  at  Waco.  There  would  be  no  chance  to  get  power  down  there 
unless  the  wires  were  hired  or  bought  back  again  from  the  Alabama  Power  Co. 
They  would  have  the  lime  tied  up  forever  (p.  943). 

The  second  100.000  horsepower  will  not  be  available  82  per  cent  of  the  year.  "It 
won't  start  up  just  100,000  and  run  even  100.000  for  eight  months  and  then  stop; 
but  it  will  vary,  and  a  great  deal  of  the  time  your  plant  will  not  be  in  full  opera- 
tion :  and  at  other  times  they  will*  crowd  that  power  on  to  you  when 
you  can  not  use  it.  The  result  would  be  you  would  have  to  have  the  employees 
there  half  of  the  time  idle,  and  your  nitrates  would  cost  you  more  than  it  would 
be  possible  to  sell  them  for"  (p.  943). 

If  the  company  finishes  Dam  No.  2  at  the  present  height,  they  will  have  the  Gov- 
ernment so  tied  up  that  it  can  not  build  Dam  No.  3  without  doing  business  with 
the  Alabama  Power  Co.  again  (p.  944  >. 

Under  its  proposal  the  Alabama  Power  Co.  would  get  the  Gorgas  plant,  the  trans- 
mission line,  and  the  steam  plant  at  nitrate  plant  No.  2.  which  cost  in  the.  neigh- 
borhood of  $20.000,000.  Then  there  is  the  $17,000.000  in  Dam  No.  2.  which  it 
takes  over,  and  **  *  *  they  get  at  least  $35.000,000  with  which  to  finance 


38  DIGEST  OF   STATEMENTS  ON   MUSCLE   SHOALS. 

Proposal  of  Alabama  Power  Co.— Continued. 

themselves  to  finish  Dam  No.  2  and  give  them  a  power  equipment  that  will  pay 
interest  on  $50,000,000.  That  is  to  say,  they  talk  about  financing  themselves; 
they  are  not  financing  themselves  at  all;  the  Government  is  financing  them, 
just  as  much  as  they  would  Mr.  Engstrum,  because  you  are  turning  over  to  them 
property  that  you  can  go  put  into  the  market  and  borrow  the  money  on  to  com- 
plete Dam  No.  2,  and  it  is  not,  in  my  opinion,  a  fair  proposition.  You  might 
as  well  simply  give  them  a  bill  of  sale  for  the  whole  thing  and  let  them  have  it, 
and  you  will  save  a  lot  of  trouble  hereafter"  (p.  944). 
Proposal  of  Mr.  Engstrum. 

"Mr.  Engstrum,  first,  wants  a  cost-plus  contract.  He  lets  the  contract  to  a  con- 
tractor, whom,  he  states,  will  have  to  have  10  per  cent;  then  he  gets  his  5  per 
cent  on  top  of  that,  which  makes  it  a  15  per  cent  contract,  and  that  in  itself  is 
15  per  cent  more  than  there  is  any  reason  to  pay"  (p.  939). 

Under  section  21  of  the  proposal,  which  states  that  all  stores,  supplies,  equip- 
ment, and  other  loose  personal  property  now  on  or  about  the  premises  shall  be- 
come the  property  of  the  lessee  upon  the  execution  of  the  contract,  Mr.  Eng- 
strum would  acquire  $3,500,000  worth  of  property.  If  the  Government  lets 
the  work  to  a  contractor,  Mr.  Engstrum  could  sell  this  property  to  the  contractor 
for  at  least  $5,000,000,  or  rent  it  to  him.  So  that  Mr.  Engstrum  would  not  be 
short  of  money  anywhere  during  the  construction  (p.  939). 

The  alterations  of  the  nitrate  plant  are  estimated  at  about  $7,000,000.  Such 
alterations  are  to  be  made  at  the  expense  of  the  contract.  There  is  a  trust 
fund  created  of  1  mill  for  each  kilowatt  hour  of  current  sold;  the  mill  and  the 
cost  of  the  nitrates  becomes  a  trust  fund  in  the  hands  of  the  lessee  to  make  up 
the  deficit  in  the  manufacturing  of  nitrates  and  also  for  the  purpose  of  making 
the  alterations  from  time  to  time  in  the  plant.  "When  business  gets  dull  with 
them,  all  they  have  to  do  is  to  tinker  with  the  plant  and  use  up  all  the  money 
in  the  hands  of  the  trust  fund.  They  do  not  have  to  do  a  thing  about  making 
nitrates"  (p.  939). 

"As  foolish  as  this  contract  is,  as  absurd  as  I  think  it  is.  it  is  a  better  contract 
to-day  than  the  Alabama  Power  Co.  or  the  Ford  contract.     *    *    *     I  do  not 
claim  that  neither  of  these  three  contracts  [is]  raised  to  the  dignity  of  a  con- 
tract, but  [they]  are  simply  well  worded  applications  for  a  hand -out"  (p.  940). 
Proposal  of  Mr.  Ford" 

Statement  showing  defects  in  the  Ford  tender  (pp.  942-943). 

Summary  of  defects  in  the  Ford  tender: 

1.  It  requires  the  completion  of  Dam  No.  3.  which  is  uncertain. 

2.  It  requires  the  Government  to  litigate  the  title  to  the  Gorgas  steam  plant 

and  transmission  lines  before  it  becomes  operative.  This  means  delay 
and  the  ruin  of  nitrate  plant  No.  2. 

3.  The  Ford  tender  does  not  provide  for  increasing  the  nitrate  supply.     The 

first  right  to  the  power  would  be  vested  in  the  Ford  industries. 

4.  Under  the  tender  the  Government  would  bear  the  burden  of  maintenance. 

5.  This  tender  will  cost  the  Government  more  than  $50,000,000,  and  if  Dam 

No..  3  is  not  successful  there  would  be  little  chance  of  recapturing  the 
property  or  amortizing  the  investment. 

6.  Mr.  Ford  make  this  tender  as  a  dear  friend  of  the  farmers,  from  whom  he 

has  acquired  millions  of  dollars.  Should  he  get  possession  of  their 
fertilizer  supply  they  will  realize  that  he  is  the  "dearest  friend"  they 
ever  had  (pp.  942-943). 

DIGEST  OF  STATEMENT  OF  MR.  FRANCIS  E.  FROTHINGHAM,  OF  COFFIN  &  BURR,  BOS- 
TON, MASS.  (PP.  947-969). 

Alabama  Power  Co. 

Alabama  Power  Co.  is  in  the  business  of  making  electricity  for  general  use  and  for 
needful  service.  The  company  carries  on  its  business  under  public  regulation, 
either  of  the  State,  of  the  Congress,  or  of  the  Federal  Water  Power  Commission, 
which  means  that  the  company  is  allowed  to  earn  only  a  fair  return  on  the 
money  actually  used  in  the  public  service.  That  means,  then,  not  that  the 
Alabama  Power  Co.  is  building  up  a  monopoly  hostile  to  the  interests  of  the 
public,  but  that  the  public  has  decided  that  it  will  regulate  that  monopoly  in 
its  own  interests;  that  it  will  be  the  monopolizer  and  not  the  Alabama  Power 
Co.  or  anyone  else  (p.  949). 

Should  the  Government  accept  the  proposition  of  the  Alabama  Power  Co.,  Coffin 
&  Burr  have  told  Mr.  Martin  that  they  believe  that  in  the  face  of  what  he  has 
told  them  of  the  growing  markets  and  the  business  which  is  expected  to  absorb 
the  initial  output  of  this  plant  when  it  is  completed,  that  his  proposition  can  be 


DIGEST   OF   STATEMENTS  ON   MUSCLE   SHOALS.  39 

Alabama  Power  Co. — Continued. 

financed  and  that  they  [Coffin  &  Burr]  could  probably  supply  the  money 
(p.  963). 

Disposition  of  Muscle  Shoals  proposition. 

As  an  American  citizen  who  has  studied  these  questions  the  country  over,  Mr. 
Frothingham  thinks  that  the  best  interests  of  the  public  are  served  by  putting 
the  Muscle  Shoals  situation  into  the  hands  of  the  agency  which  is  prepared  and 
has  demonstrated  its  ability  to  serve  the  public  already  [the  Alabama  Power 
Co.]  (p.  955). 

If  Mr.  Ford  should  develop  this  project  and  should' have  power  for  sale  cheaper 
than  the  Alabama  Power  Co..  that  company  would  not  be  injured  by  the  ex- 
istence of  that  power  developed  by  somebody  else;  but  the  public  would  be 
greatly  injured ,  because  instead  of  retaining  the  monopoly  control  which  it 
has  over  the  situation  as  it  is  to-day,  it  would  deliberately  create  a  monopoly 
control  as  against  itself  in  the  hands  of  a  private  owner  beyond  the  reach  of 
governmental  regulation  and  that  would  be  very  much  the  graver  of  the  two 
evils  to  the  public  (p.  957  i. 

Fertilizer. 

;<I  have  a  feeling  *  *  *  that  if  there  is  a  demand  for  the  manufacture  of 
nitrates,  with  a  situation  as  clean  as  a  whistle,  as  it  would  be  for  an  independent 
concern,  expert  in  that  business,  to  lease  a  plant  from  the  Government  and  have 
100.000  horsepower  of  free  power,  and  with,  therefore,  a  minimum  demand  for 
new  capital  that  people  would  come,  forward  to  do  that  business,  and  if  they  did 
that  business,  and  that  business  only,  you  would  get  more  and  better  fertilizer 
made  than  you  could  get  made  in  any  other  way"  (p.  968). 

Interest. 

In  Mr.  Frothingham's  opinion  the  100,000  horsepower  which  the  Alabama  Power 
Co.  will  supply  to  the  Government  has  an  equivalent  money  value,  and  he 
thinks  that  equivalent  money  value  might  be  taken  as  an  interest  on  the  $17,- 
000.000  investment  the  Government  already  has  in  Dam  No.  2  (p.  954). 

Muscle  Shoals  proposition. 

Only  by  tying  together  by  transmission  lines,  and  in  every  way  known  to  science, 
the  capacities  of  hydroelectric  development  possible  on  the  Coosa  and  the 
Tallapoosa  Rivers  with  the  Tennessee  River  development,  the  greatest  value 
of  that  river  may  be  realized.  Under  such  a  scheme  the  Muscle  Shoals  plant 
might  be  developed  economically  to  500,000  or  600,000  horsepower,  and  the 
aggregate  of  hydroelectric  installed  capacity  which  might  be  created  within  a 
90-mile  radius' of  Birmingham  is  in  the  neighborhood  of  1,500,000.  The  Muscle 
Shoals  powep  will  then  have  reached  the  full  of  its  usefulness,  because  it  is  one 
limb  of  a  whole  live  functioning  body.  But  those  figures  can  only  be  realized 
and  full  advantage  taken  of  them  if  coordinated  by  some  single  agency.  No 
combination  of  agencies  can  accomplish  the  equivalent  results  that  a  single 
agency  can  if  every  advantage  is  to  be  taken  of  the  diversity  fact  or  which  such  a 
combination  can  realize.  With  a  combined  system  widely  scattered  loads  may 
be  averaged,  so  that  the  average  aggregate  demand  is  much  less  than  the  sum  of 
the  individual  demands.  That  means  that  there  is  less  requirement  for  installa- 
tion of  power  producing  and  distributing  capacity  and  a  correspondingly  less  in- 
vestment to  take  care  of  that  same  business.  It  means  also  that  the  shortcomings 
of  one  source  of  power  may  be  offset  by  the  availability  of  another  source,  and 
that  whatever  power  is  generated  at  one  source  or  another  may  find  its  way 
to  the  market  by  the  most  direct  and  efficient  route.  That  is  applying  the 
principle  of  load  factor  to  all  the  various  portions  and  to  the  whole  of  such  a 
property  (p.  948 1. 

Financing  the  Muscle  Shoals  dam  as  an  independent  proposition  would  be  en- 
tirely uninteresting  to  Mr.  Frothingham  (p.  969). 

Proposal  of  the  Alabama  Power  Co. 

The  Alabama  Power  Co.'s  proposition  leaves  the  nitrate  plants  and  the  quarry 
which  supplies  them  in  possession  of  the  Government,  and  it  gives  to  the  Gov- 
ernment, free  of  cost,  100,000  horsepower,  so  that  the  Government  not  only 
has  the  plants  which  it  has  built  for  the  production  of  explosives,  but  the  free 
power  with  which  to  run  them.  If  the  Alabama  Power  Co.  is  allowed  to  finish 
the  Muscle  Shoals  plant,  it  will  have  started  a  great  power  system  on  its  way, 
so  that  as  time  goes  on  and  the  markets  increase,  there  will  be  developed  such 
an  aggregate  of  power  in  that  territory  that  in  the  event  of  war  the  Government 
will  have  more  power  available  than  it  can  conceivably  use.  The  nitrate  plant 
is  left  in  the  hands  of  the  Government  and  100.000  horsepower,  free  of  cost,  is 
provided  to  the  Government,  or  to  any  other  agency  that  the  Government 
wants  to  specify  to  manufacture  fertilizer.  The  company  in  its  offer  to  com- 


40  DIGEST   OF   STATEMENTS  ON   MUSCLE   SHOALS. 

Proposal  of  the  Alabama  Power  Co. — Continued. 

plete  the  work  without  further  cost  to  the  Government  meets  the  demand  of 
the  Government  for  the  most  complete  general  use  of  Muscle  Shoals  100  per 
cent  (pp.  950-951). 

The  Alabama  Power  Co.'s  proposition  completely  complies  with  the  policy  ot 
the  Government  in  the  handling  of  the  powers  in  the  public  domain  and  on 
navigable  streams,  as  laid  down  by  the  Federal  Water  Power  Commission.  The 
fact  also  that  the  company  completes  the  development  at  its  own  cost  is  no 
slight  consideration  (p.  952). 

Should  the  Government  accept  the  proposition  of  the  Alabama  Power  Co.,  Coffin  & 
Burr  have  told  Mr.  Martin  that  they  believe  that  in  the  face  of  what  he  has  told 
them  of  the  growing  markets  and  the  business  which  is  expected  to  absorb  the 
initial  output  of  this  plant  when  it  is  completed,  that  his  proposition  can  be 
financed  and  that  they  [Coffin  &  Burr]  could  probably  supply  the  money  (p.  963) 
Public  utilities. 

Mr.  Frothingham  has  studied  problems  of  public  utilities  and  is  sincerely  inter- 
ested that  the  best  public  service  shall  be  performed ;  he  is  convinced  of  the 
fact  that  as  our  institutions  are  run  in  this  country  the  privately  managed  con- 
cern, under  regulation,  secures  through  private  initiative  and  close  application 
to  the  problems  involved  results  that  can  not  be  gotten  in  any  other  way. 
Therefore,  it  is  to  the  advantage  of  the  public  to  have  these  concerns  run  in 
that  manner.  Competition  in  the  water-power  business  is  destructive.  It 
multiplies  investment  needlessly,  and  the  cost  has  to  be  absorbed  by  the  com- 
munity in  some  wav  or  other,  whether  it  knows  it  and  realizes  it  or  not.  (pp. 
966-967). 

DIGEST  OF  STATEMENT  OF  HON.   WILLIAM  B.  BANKHEAD,  A  REPRESENTATIVE  IN 
CONGRESS  FROM  THE  STATE  OF  ALABAMA  (PP.  1018-1020). 

Disposition  of  Muscle  Shoals  proposition. 

"The  entire  Alabama  delegation  *  *  present  to  you  [the  committee]  a 
statement  of  the  expression  of  the  unanimous  attitude  not  only  of  our  entire 
delegation  in  the  House,  but  I  am  authorized  to  say  also  the  attitude  of  our 
representatives  in  the  Senate,  as  being  all  for  the  recommendation"  by  this 
committee  that  the  offer  of  Mr.  Ford  be  accepted  in  its  amended  form  and 
reported  to  the  House  for  favorable  action"  (p.  1018). 

DIGEST  OF  STATEMENT  OF  HON.  JOSEPH  W.  BYRNS,  A  REPRESENTATIVE  IN  CONGRESS 
FROM  THE  STATE  OF  TENNESSEE  (P.  1020). 

Disposition  of  Muscle  Shoals  proposition. 

"Representing  one  of  the  districts  in  Tennessee,  and  on  behalf  of  Tennessee, 
speaking,  as  I  believe,  the  sentiments  of  an  overwhelming  majority  of  the 
people  of  that  State,  I  hope  that  this  committee  will,  in  its  wisdom,  see  fit  to 
recommend  the  acceptance  of  the  proposition  made  by  Mr.  Ford"  (p.  1020). 

DIGEST  OF  STATEMENT  OF  HON.  JOHN  McDuFFiE,  A  REPRESENTATIVE  IN  CONGRESS 
FROM  THE  STATE  OF  ALABAMA  (PP.  1021-1026). 

Alabama  Power  Co. 

If  the  offer  of  the  Alabama  Power  Co.  were  accepted,  they  would  get  over 
$30,000,000  worth  of  property  for  $500,000,  because  the  cost  of  the  locks  is  esti- 
mated to  be  $4,500,000  (p.  1023). 

If  this  great  water-power  project  is  given  over  to  the  Alabama  Power  Co.,  that 
company  will  have  a  complete  and  perfect  monopoly  of  the  water-power  in- 
dustry of  the  State  (p.  1023). 
Disposition  of  Muscle  Shoals  proposition. 

The  offer  of  Mr.  Ford  more  nearly  conforms  than  any  other  to  the  policy  of 
Congress  in  authorizing  the  development  of  plants  for  making  explosives  and 
fertilizer,  and  his  offer,  viewed  from  the  standpoint  of  a  return  on  the  invested 
capital,  is  better  than  any  other.  Measured  by  other  investments  of  public 
money  the  Ford  offer  means  a  greater  return  on  the  capital  invested  than  any 
other  Government  enterprise  Mr.  McDufne  can  recall  (p.  1022), 

DIGEST  OF  STATEMENT  OF  COL.  J.  W.  JOYES,  ORDNANCE  DEPARTMENT, 

UNITED  STATES  ARMY  (PP.  1038-1115). 
Alabama  Power  Co. 

The  Alabama  Power  Co.  bought  the  right  of  way  for  the  transmission  line  on  their 
own  account  and  paid  for  it  with  their  own  money,  but  they  did  it  at  the  sug- 
gestion of  Colonel  Joyes  (p.  1090). 


DIGEST   OF   STATEMENTS   ON    MUSCLE   SHOALS.  41 

Alabama  Power  Co.,  contract  with. 

When  negotiations  with  the  Alabama  Power  Co.  were  opened  in  December, 
1917,  the  Ordnance  Department  found  it  difficult  to  get  at  a  working  arrange- 
ment. If  the  power  had  been  taken  by  commandeering  many  industries 
would  have  been  interfered  with  which  the  War  Industries  Board  said  must 
not  be  interfered  with  in  any  way.  In  addition,  the  probable  cost  and  com- 
plication due  to  commandeering  appeared  prohibitive  (p.  1044). 
How  to  have  the  Government's  interest  protected  and  the  Alabama  Power  Co.'s 
interest  protected  made  a  very  complicated  situation.  "I  said.  'We  have  got 
to  do  the  thing  anyhow  and  we  will  find  a  way  to  do  it  after  we  have  got  it 
started.'  "  Consequently  three  purchase  orders  were  drawn,  one  for  delivery 
of  power,  one  for  an  extension  of  the  Gorgas  plant,  and  one  for  the  building  of 
a  transmission  line.  Those  orders  were  safe,  as  they  were  capable  of  later 
treatment  as  commandeering  orders  (p.  1045). 

In  the  summer  of  1918  Colonel  Joyes  no  longer  had  any  authority  to  sign  a  con- 
tract. He  took  a  draft  of  the  contract  with  the  Alabama  Power  Co.  to  the 
Procurement  Division.  The  matter  was  referred  to  Colonel  Williams.  He 
redrafted  the  contract,  putting  it  into  the  regular  form  of  the  division.  Im- 
portant conferences  were  held  at  which  Colonel  Joyes  and  representatives  of 
the  company  were  present.  The  contract  was  finally  signed  on  November  7 
1918  (p.  1049). 

The  United  States  had  to  provide  additional  facilities  to  enable  the  power  com- 
pany to  give.it  the  power  it  wanted — to  sell  it — and  having  provided  those 
facilities,  it  wanted  to  get  some  return  upon  its  expenditures  if  possible,  and  it 
wanted  the  best  return  upon  its  expenditures  that  it  could  get.  The  Ordnance 
Department  considered  very  .carefully  how  that  could  be  done.  Possibly  it 
could  have  taken  some  land  somewhere  down  there,  seized  the  land  or  bought 
it.  and  gone  ahead  to  build,  but  at  that  time  there  were  specific  legal  provisions 
against  buying  any  land  (p.  1050). 

The  contract  with  the  Alabama  Power  Co.,  was  made  because  Colonel  Joyes 
thought  that  the  best  thing  that  could  be  done  was  to  arrange  to  take  the  tem- 
porary use  of  the  land  and  such  facilities  as  were  needed  of  the  company.  There 
was  no  bar  to  a  lease  or  to  a  rental,  while  there  was  to  a  purchase.  "Why  did  we 
.  go  in  there  and  get  mixed  up,  interlocked,  and  intertwined  with  agoing  concern 
so  it  could  not  be  gotten  away?  '•  *  *  The  reason  was  this:  They  had  what 
we  wanted  there  and  at  that  time  when  we  were  in  the  war,  when  we  found 
what  was  needed,  we  went  after  it  and  took  it  in  some  way  or  other"  (p.  1052). 
The  making  of  the  contract  with  the  Alabama  Power  Co.  meant  a  considerable 
gain  of  time  for  the  Ordnance  Department.  It  wanted  the  power  in  six  months. 
The  contract  meant  taking  a  particular  piece  of  land  with  certain  structures 
belonging  to  the  power  company  already  in  the  ground.  To  make  power  of 
high  potential  it  has  to  be  either  in  one  plant  or  there  must  be  a  more  expensive 
and  troublesome  installation.  "So,  naturally,  we  built  it  to  go  right  into  the 
one  thing  'r  and  especially  we  felt  it  preferable  to  do  that  because  that 

gave  us  a  very  proper  and  correct  outlook  to  get  some  money  back  for  the  United 
States.  In  many  cases  where  the  Ordnance  Department  had  at  that  time  to  put 
in  additional  facilities  to  get  what  the  Government  had  to  have,  we  thought, 
•  This  is  all  lost  money:  this  is  sunk.  It  is  an  expense  account  and  not  an  invest- 
ment, and  we  will  never  get  any  of  it  back';  but  here  we  had  an  assurance  of 
getting  some  of  it  back "  (p.  1052). 

Instead  of  the  contract  with  the  Alabama  Power  Co.  being,  as  some  people  have 
hinted,  an  unprecedented  monstrosity,  it  has  lots  of  good  precedents,  the 
precedents  have  gone  further  than  it  went,  and  those  that  went  the  furthest 
got  the  best  ultimate  result  in  the  settlement  generally  (p.  1058). 
The  part  of  the  Alabama  Power  Co.'s  contract  which  gave  to  them  the  option  to 
buy  the  buildings  erected  by  the  Government  was  not  at  all  unprecedented. 
It  was  exactly  the  same  kind  of  contract,  in  principle,  that  was  entered  into 
in  many  other  cases  (p.  1094). 

The  reason  for  the  clause  in  the  contract  with  the  Alabama  Power  Co.,  which 
provided  that  the  Government  might  not  demand  that  the  company  buy  the 
Gorgas- Warrior  steam  plant  until  three  years  after  peace  was  declared  was  that 
it  was  thought  that  there  would  be  a  certain  period  after  the  war  when  condi- 
tions of  financing  and  of  business  would  be  difficult.  It  seemed  but  fair  to 
allow  anybody  whom  the  Government  would  require  to  make  a  purchase  a  little 
time  for  business  to  readjust  itself  (p.  1108). 

Believes  that  in  the  contract  with  the  Alabama  Power  Co.  are  to  be  found  the 
best  means  of  enforcing  the  legal  rights  and  protecting  the  proper  equities  of 
the  United  States.  Advises  that  the  contract  be  respected  and  enforced  and 


42  DIGEST   OF  STATEMENTS  ON   MUSCLE   SHOALS. 

Alabama  Power  Co.,  contract  with — Continued. 

urges  that  the  policy  of  the  Government  be  to  secure  in  the  manner  prescribed 
in  the  contract  the  most  advantageous  settlement  possible  (p.  1115). 
Disposition  of  Muscle  Shoals  proposition. 

The  War  Department  has  in  the  past  proposed  that  Congress  authorize  a  Govern- 
ment-owned corporation  to  take  over  and  operate  the  power  of  Dam  No.  2  and 
all  the  nitrate  properties .  The  plan  provided  that  about  $1,500,000,  the  balance 
on  the  books  of  the  old  $20,000,000  appropriation,  was  to  go  to  the  corporation 
which  would,  in  return,  issue  common  stock  which  was  to  go  to  the  United 
States  in  toto.  The  United  States  was  to  provide  $12,000,000  as  operating 
capital,  the  return  for  which  was  to  be  preferred  stock  issued  to  the  United  States 
in  toto.  It  was  also  proposed  that  to  get  the  operating  capital  a  certain  amount 
of  Chilean  nitrate  in  storage  would  be  marketed  instead  of  trying  to  raise  the 
money  (p.  1097). 
Gorgas- Warrior  steam  plant. 

Considers  that  it  is  not  necessary  for  Mr.  Ford  to  have  the  Gorgas- Warrior  steam 
plant  or  the  property  that  belongs  to  the  Alabama  Power  Co.  in  order  to  operate 
the  Muscle  Shoals  project  (p.  1075). 
Legal  questions  involved. 

Revised  Statutes,  3736,  prevented  Ordnance  Department  from  buying  land  at 
time  contract  was  made  with  the  Alabama  Power  Co.  (p.  1050). 

The  Gorgas- Warrior  steam  plant  has  no  connection  whatever  with  the  national 
defense  act.  The  Ordnance  Department  did  not  spend  a  cent  of  money  under 
that  provision  of  law,  section  124,  either  for  the  Alabama  Power  Co.  work  or  for 
the  nitrate  plant  No.  2  which  it  was  to  serve  (p.  1053). 

Regarding  the  difficulties  incident  to  purchasing  land  for  nitrate  plant  No.  2 
Colonel  Joves  testifies,  "We  could  get  the' money  *  *  *  from  the  general 
appropriation  acts  to  build  the  plant,  but  we  could  not  get  the  money  to  buy 
the  land.  So  the  only  way  I  saw  to  do  it  was  to  take  some  of  this  money  pro- 
vided for  in  section  124  of  the  national  defense  act  to  cover  the  purchase  of  land 
alone,  and  I  got  an  allotment  made  by  the  President  of  the  sum  of  $200,000  to 
pay  for  the  purchase  of  the  land  for  United  States  nitrate  plant  No.  2  at  Muscle 
Shoals.  *  *  *  There  was  altogether  allotted  tome  $350, 000  for  the  purpose 
of  buying  the  land.  But  I  never  spent  a  cent  of  it.  I  realized  the  disadvantage 
of  using  that  money  to  buy  the  land  for  the  nitrate  plant,  because  I  knew  the 
only  way  we  could  make  the  nitrate  plant  was  to  work  with  a  private  corporation, 
and  the  law  forbade  that.  *  But  before  it  came  to  the  payment  for  the 

first  parcel  of  land  there  was  legislation  which  did  permit  the  purchase  of  land 
out  of  the  general  appropriations  for  purchasing  munitions,  namely,  armament 
of  fortifications.  *  *  So  the  money  being  on  my  ledgers  intact  and  never 
touched  I  had  it  revoked"  (pp.  1054-1055). 

Nitrate  plant  No.  2  was  constructed  out  of  money  appropriated  to  purchase 
munitions  and  armament  of  fortifications  (p.  1057). 

Considers  that  nitrate  plant  No.  1  was  proceeded  with,  as  far  as  it  did  go,  under 
the  terms,  authority,  and  limitations  of  section  124  of  the  national  defense 
act,  and  that  nitrate  plant  No.  2  was  primarily  and  completely  a  war  proposi- 
tion. That  opinion  is  supported  by  the  nature  of  the  actual  need  which 
inspired  the  creation  of  plant  No.  2  (p.  1061). 

Nitrate  plant  No.  2  had  no  reference  to  the  national  defense  act,  but  it  was  located 
at  Muscle  Shoals  because  that  was  the  best  plave  where  it  could  be  put  (p.  1086). 

"The  fundamental  purpose  of  that  plant  [nitrate  plant  No.  2]  was  that  it  was 
not  an  act  of  the  President  or  his  agent  under  the  legislation  contained  in 
section  124  of  the  national  defense  act.  It  was  not  intended  to  be  from  the 
beginning,  by  anybody  that  I  know  of  who  advised  the  President.  It  was 
intended  purely  and  simply  to  help  the  Government  in  its  war  needs,  and, 
having  done  so,  we  found  the  most  certain  way  to  get  it  was  to  work  with 
this  coporation"  (p.  1091). 

Mr.  WRIGHT.  "Is  it  not  a  fact,  Colonel,  that  when  you  were  locating  this  nitrate 
plant  that  the  only  authority  of  law  you  had  for  doing  so  was  the  national  de- 
fense act  of  1916,,  and  that,  regardless  of  where  the  money  was  to  be  derived 
with  which  you  would  pay  for  the  construction,  that  the  authority  for  estab- 
lishing these  plants  was  derived  from  the  act  of  1916?" 

Colonel  JOYES.  "I  would  not  say  the  authority  for  establishing  the  plants.  It 
could  hardly  be  said,  I  believe,  that  the  authority  for  establishing  the  plant 
could  be  given  by  the  national  defense  act,  which  appropriated  only  $20,000,- 
000.  We  knew  we  could  not  do  it  wif;h  that. ' ' 


DIGEST  OF  STATEMENTS  ON   MUSCLE   SHOALS.  43 

Legal  questions  involved — Continued. 

Mr.  WRIGHT.  -i  Did  you  know  exactly  where  you  were  when  you  were  establishing 

these  plants,  a)s  a  matter  of  legality?" 

Colonel  Jo  YES.  "We  had  a  pretty  fair  idea  that  we  were  working  with  very  little 
backing  in  law  or  legislation  for  all  the  things  we  were  called  upon  and  required 
to  do." 

#  *•  *  *  "— '    *  * 

Mr.  WRIGHT.  "Xow,  your  idea  is  that  the  sole  means  by  which  to  determine 
under  what  law  these  plants  were  constructed,  especially  nitrate  plant  No.  2, 
would  be  with  reference  to  the  funds  with  which  they  were  paid  for. " 

Colonel  Jo  YES.  "I  think  that  is  a  legitimate  assumption' '  (pp.  1098-1099). 
National  defense. 

Considers  that  acceptance  of  the  Ford  offer  does  not  mean  complete  independence 
of  Chile  in  the  matter  of  nitrogen.     It  would  be  a  most  desirable  step  toward 
preparedness,  but  would  not  mean  full  preparedness  (p.  1097). 
Nitrate  plant  No.  2. 

Nitrate  plant  Xo.  2  needs  a  little  more  power  than  is  present  in  the  generating 
unit  of  its  steam  power  plant  to  produce  to  full  rated  production.  The  plan 
of  the  power  plant  was  changed  early  in  its  construction  sp  that  there  is  ample 
room  in  the  electric  generating  room  to  put  in  another  uuit,  about  a  30,000- 
kilowatt  unit  (p.  1096.) 
Nitrates. 

The  Nitrates  Commission  recommended  the  synthetic  ammonia  process.  Nitrate 
plant  No.  1  was  built  for  that  process.  In  the  emergency  of  October,  1917, 
the  Ordnance  Department  recommended  the  cyanamid  process  (pp.  1062, 
1064,  1092). 

DIGEST  OF  STATEMENT  OF  DR.  CHARLES  L.  PARSONS,  CONSULTING  CHEMISI 

(PP.  1115-1145). 
Cyanamid  process. 

The  cyanamid  process  is  practically  already  superseded  by  the  Haber  process 
and  its  modifications.  Many  cyanamid  plants  in  foreign  countries  are  closed 
(p.  1121). 

The  ammonium  sulphate  plant  of  the  American  Cyanamid  Co.  at  Warners,  N.  J., 
is  not  operating.    The  company  can  not  operate  against  the  competition  that 
is  coming  from  this  country,  and  they  certainly  can  not  operate  against  the 
competition  which  may  come  from  foreign  countries  (p.  1122). 
Disposition  of  Muscle  Shoals  proposition. 

•'I  think  the  Government  should  first  find  out  what  it  has  to  sell  and  then  having 
found  that  out  it  can  put  this  before  the  people  of  the  country  and  offer  it  to 
them  for  bids  and  sell  it  to  the  highest  bidder,  who  will  put  it  through  for  the 
purposes  you  want"  (p.  1140). 
Estimates. 

"There  is  a  little  calculation  I  have  made  showing  what  interest  it  might  be 
possible  to  obtain  from  the  hundred  thousand  horsepower  which  is  unques- 
tionably salable  by  the  Government.  *  *  *  If  you  sell  that  horsepower 
for  three-quarters  of  a  mill  on  the  average,  it  amounts  to  $657,000  a  year,  and 
if  you  take  that  $657,000  a  year  and  put  it  in  a  sinking  fund  as  the  smaller  sum 
which  Mr.  Ford  offers  is  suggested  to  be  put  into  a  sinking  fund,  that  $657,000, 
in  94  years  at  4  per  cent  compounded,  as  given  in  the  Secretray  of  War's  report, 
would  be  equal  to  $676,572,030  instead  of  $40,000,000,  which  the  other  one 
would  amount  to  on  exactly  the  same  basis.  At  5  per  cent  interest  it  would 
be  over  $1,200,000,000"  (p.  1144). 

"I  have  not  said  the  Government  was  going  to  make  this  money.  The  Govern- 
ment is  not  in  the  habit  of  putting  its  money  in  a  sinking  fund  and  keeping  it 
for  94  years  and  compounding  it  semiannually,  as  the  plan  proposed  in  the 
Ford  offer  would  do,  according  to  the  statement  prepared  by  the  Secretary  of 
War.  I  simply  said  that  there  was  a  comparison;  Mr.  Ford  has  spoken  of  a 
sinking  fund  of  $40,000  annually  on  Dam  No.  2.  Here  is  another  sinking  fund, 
identically  parallel,  of  $657,000  income  annually  .from  Dam  No.  2,  which,  if 
you  do  the  same  thing  with  it,  would  amount  to  that  money  in  that  time.  But 
I  do  not  think  the  Government  is  going  to  do  it"  (p.  1145). 
izer. 

''The  statement  was  made  that  the  2,000,000  tons  of  fertilizer  would  probably 
be  made  at  a  saving  of  33£  per  cent.  Now,  if  you  will  take  the  present  price 
of  that  amount  of  fertilizer  and  put  all  the  'nitrate'  which  could  be  made  in 
plant  No.  2  into  it  for  nothing,  the  saving  would  not  be  33$  per  cent  of  the  fer- 
tilizer" (p.  1127). 


44 


DIGEST   OF   STATEMENTS   ON    MUSCLE   SHOALS. 


Fertilizer — Continued. 

Doctor  Parsons  does  not  believe  Mr.  Ford  or  anyone  else  can  operate  nitrate  pla 
No.  2  to  make  fertilizer.     He  thinks  that  if  Mr.  Ford  runs  it  to  its  capacity 
make  nitrates  he  will  lose  all  his  fortune  in  20  years  (p.  1138). 
Haber  process. 

The  Haber  process  and  its  medications  have  practically  superseded  the  cyanamu 
process  (p.  112T). 

There  is  no  patent  on  the  Haber  process  at  the  present  time  that  keeps  us  froi 
using  it.     This  process  will  make  ammonia  a  great  deal  cheaper  than  any  otl 
process  for  the  fixation  of  nitrogen  from  the  air  (p.  1122). 

Doctor  Parsons  has  not  the  slightest  doubt  that  the  fixed  nitrogen  which  is  to  b< 
made  in  the  future  in  America  is  going  to  be  made  by  a  synthetic  ammonii 
process,  whether  it  is  at  Muscle  Shoals  or  wherever  it  may  be,  simply  for  th< 
reason  that  there  is  no  other  process  it  the  world  that  for  a  minute  can  compet 
with  it  commercially  (p.  1124). 

In  Germany  the  Haber  process  is  operating  at  full  capacity,  turning  out  300, ( 
tons  of  nitrogen  per  year,  about  90,000  tons  of  which  is  at  Oppau  and  the  oth< 
210,000  at  Merseburg  (p.  1124). 

The  explosion  at  Oppau  had  absolutely  nothing  to  do  with  the  Haber  proc< 
(p.  1124). 

First  trial  of  nitrate  plant  No.  1,  using  the  Haber  process  as  modified  by 
General  Chemical  Co.  was  not  thoroughly  successful.     Doctor  Parsons  di 
agrees,  however,  with  the  testimony  to  the  effect  that  that  plant  was  a  failui 
(p.  1136). 
Navigation. 

If  nitrate  plant  No.  2  is  operated,  there  will  be  approximately  460,000  tons  oi 
sludge  per  year  that  has  to  be  disposed  of.  In  the  hearings  which  have  gone 
before,  they  have  assumed  it  would  be  run  into  the  Tennessee  River.  Doctor 
Parsons  thinks  that  if  it  is  run  into  the  Tennessee  River  it  will  damage  navi 
gation  far  more  than  the  locks  that  may  be  put  in  will  help  it  (p.  1126). 
Nitrate  plants. 

Doctor  Parsons  objected  to  the  installation  of  nitrate  plant  No.  2  because  th( 
cyanamid  process  was  a  process  that  was  becoming  obsolete  (pp.  1116,  1117). 

Instead  of  being  a  failure,  nitrate  plant  No.  1  has  thoroughly  justified  itseU 
(p.  1124). 

Doctor  Parsons  believes  very  strongly  that  the  one  possibility  of  making  fertilizer 
with  any  degree  of  cheapness  is  through  the  development  of  plant  No.  I 
at  Muscle  Shoals,  and  that  the  Government  can  never  hope  to  do  anything 
with  plant  No.  2,  and  that  anybody  that  runs  it  will  lose  money  very  rapidb 
(p.  1125). 

As  Doctor  Parsons  understands  the  situation,  nitrate  plant  No.  2  was  built  wholb 
as  a  war  emergency.  It  was  not  expected  that  it  could  compete  with  othf 
processes  on  the  fertilizer  basis  (p.  1129). 

If  nitrate  plant  No.  2  is  changed,  it  will  have  to  be  practically  wiped  off  thf 
ground  before  it  can  be  used  for  any  other  method  for  fixing  nitrogen  (p.  1130). 

Doctor  Parsons  thinks  that  nitrate  plant  No.  1  at  the  present  time  could  be  put 
into  operating  form  for  $1,500,000  to  12,000,000  with  about  30  tons  a  day  capacity 
(p.  1133). 

Mr.  McKEN^iE.  "Then,  as  a  matter  of  fact,  if  the  Alabama  Power  Co.'s  offer 
should  be  accepted  you  think  that  the  Government  would  simply  have  that 
plant  [nitrate  plant  No.  2]  standing  there  without  ever  being  operated  at  all." 

Doctor  PARSONS.  "I  think  so,  unless  they  might  possibly  operate  it.  for  calciur 
carbide.     You  might  possibly  do  that,  which  would  enable  you  to  pay  all 
expenses  in  connection,  there  with;  that  is,  a  certain  amount  of  calcium  car- 
bide would  be  taken  in  the  South  for  the  manufacture  of  acetylene  gas  for  autc 
genous  welding"  (1144). 
Power. 

Two  million  tons  of  2-8-2  fertilizer  would  contain  40.000  tons  of  nitrogen,  160,00( 
tons  of  phosphoric  acid,  and  40,000  tons  of  potash.  To  produce  these,  woulc 
require  approximately  100,000  horsepower  for  the  40,000  tons  of  nitrogen  anc 
possibly  160,000  to  170.000  horsepower  for  the  production  of  the  phosphoric 
acid  and  approximately  75,000  horsepower  more  for  the  production  of  the  pot 
ash.  "Where  are  vou'going  to  get  the  power  if  this  is  going  to  be  done  rai 


power  propostl^fe?"  You  simply  will  not  have  any  power  to  run  the  automobil 
factory  which  p'Tant  No.  1  is  is  to  be  converted  into"  (p.  1126).  « 


o 


Photom 

Pampl 

Bind! 

Gaylord 

Mak| 

Stockton] 
PAT.  JAN. 


LD9-307n-4,'65(F3042s4)4185 


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IK  ^. 


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AW 

APR2  5  1966^ 


LD  21A-60w-10,'65 
(F7763slO)476B 


MAY  10  1933 


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University  of  California 

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REC'D  LD 

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FEB  1  8  1966  7  6 


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